My last post talked
about the gap between the macroeconomic narrative in the UK media
(‘mediamacro’) and macroeconomic facts. The gap is created or
encouraged to a considerable extent by narratives employed by the
political right. So how might that change, to let reality back in?
As with other
things, Labour under Miliband had the right idea but did not follow
it through. They talked about a ‘cost of living’ crisis, but in
doing so they implicitly suggested this was some unfortunate
by-product of a strong economy. The aim should be to redefine a
strong economy as one that delivers solid real wage growth.
To do so makes
perfect sense in current circumstances, when we have just had a
policy-induced large depreciation in sterling. GDP measures the
output produced in the economy, but not how much people in that
economy can buy. Welfare depends on the latter, not the former.
It also makes sense
if real wages have fallen because workers have priced themselves into
jobs, by in effect discouraging firms to invest in labour saving
machinery. Boasts that employment is at record levels make no sense
in that situation, because high employment comes from lower wages
rather than from additional output. [1]
I have stressed in
the past (including my last post) how weak recent UK performance has
been by historical standards. But a favourite trick of the government
is to make international comparisons, of GDP rather than the more
appropriate GDP per head. So how does our economy look if we focus,
more appropriately as I argue above, on international comparisons of
real wage growth?
Luckily the ILO and
Geoff Tily have already done
the spade work. Here is a chart for all countries, with blue denoting OECD countries.
International comparison of average real wage growth since the crisis
Source: Geoff Tily, ILO.
Among OECD countries the answer is striking: only
Greece has seen real wages falls greater than the UK. The UK is
second best among the OECD at achieving a decline in real wages!
Geoff looks at data from 2008, but a quick check suggests the result
holds good if we start in 2010 instead.
The data in this
comparison only goes to 2015. You could, rightly, argue that 2016 was
a better year for the UK, but then you would have to address what
will happen to real wages this year and next. [2] You could argue
that this poor performance was a consequence of the 2008 depreciation
(which had lagged effects): again you would be right,
but the Brexit depreciation which is not yet in these figures is just
as large.
Either way this data
provides strong evidence of just how terrible UK economic performance
has been over the last several years. [3] What is more, unlike GDP, it is
data that directly relates to the experience of ordinary people. But
as Miliband found out, to quote this data is not enough. What you
need to do is start proclaiming that the UK economy under a
Conservative Chancellor has performed worse than any other OECD
economy besides Greece. Just that, no caveats, no qualifications, no
‘cost of living’ label. Only that way will you begin to shift the
narrative that we have a strong economy.
[1] If you are
worried that this might help justify calls to reduce immigration,
fear not. What they show is that policymakers failed to create an
adequate level of aggregate demand: another consequence of austerity.
