Saturday, March 22, 2014

The Decline in Productivity And Potential Output In The UK

Simon Wren-Lewis posts a graph which shows that the potential output of the UK economy may have been permanently reduced.  The economy will not return to the long term trend of economic growth that it experienced prior to the recession.  The decline in productivity, which is the result of weak investment, is part of the reason for reducing the potential output of the economy.

Wren-Lewis is particularly critical of the policies employed by the government that contributed to this problem.  He puts the blame on Chancellor Osborne who has put electoral politics ahead of the national interest.  He was able to sell the public on the virtues of austerity, that worsened the recession, and to then take credit for the partial recovery which followed the curtailment of austerity measures, with the help of a cooperative media.  This does not auger well for the future of the UK.  It will have to adapt to declining living standards, and to a form of democracy that depends upon a misinformed public.  Perhaps we can call this the Rupert Murdoch economy.

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