Recovery of what? We need a new way of assessing growth
The British economy is officially, technically growing. Growth figures in the region of 0.2% confirm that it is out of recession. But what does this even mean? After months and months, in which funny money was flowing off the printing presses of its central bank and its formerly neo-liberal state came to represent more than 50% of GDP, we can be forgiven for viewing such statistics as a hall of mirrors.
Since September 2008, the UK government’s priority has been to perform one almighty Keynesian PR job. It’s single ambition has been to convince enough investors not to abandon the banking system altogether, no matter how opaque that system might have become. Compared to achieving that priority, any resulting GDP growth must be considered little more than a trick of the light.
An illusion of functioning capitalism was successfully sustained, but this sort of lightshow spectacular does not come cheap. The British will be paying the bills for a decade or more, and having saved capitalism from itself, may now discover that it is far from grateful. It is hard to imagine where growth can arise from in the near future, as banks continue to eye one another with suspicion, and the state shrinks more dramatically than it ever did during the supposed laissez-faire years of the 1980s and 90s.
Add to this a further troubling thought. Britain’s famed financial services, which lay at the heart of Tony Blair and Gordon Brown’s boom, may have been extremely adept at expanding their own size and reach, but did nothing to grow the rest of the economy, bar some associated service jobs in London. Outside of business and financial services (which by 2007 accounted for a third of GDP) and the public sector, net job creation under New Labour was close to zero.
In this respect, the growth that was experienced between 1992-2007 also had a partly illusory quality. The financial ‘innovators’ presumed to turn money into more money, which could then be distributed beyond the confines of London and the South East using fiscal policy. Before the recent election, David Cameron warned the people of Northern Ireland and North East England that they would soon have to live without the sustenance of strategically located public sector employment. It was a grim reality check.
This story of illusion and counter-illusion is typical of the experiences of the nations embroiled in the financial crisis. In Britain and beyond, the post-crisis mood is not only one of economic trepidation, but also one of fundamental evaluative suspicion. On the face of it, and somewhat surreally, major economies are still dominated by all the identical actors – the same government agencies, same banks, same credit rating agencies, same experts. What has changed is not the structure of economic institutions at all, but the credibility of each of their component parts.
Every valuation is now tempered by a deep-lying doubt. Not the doubt of Rene Descartes that might be resolved through reason, but that of Friedrich Nietzsche, which questions the possibility of ever telling fact from fiction. Initiated deep inside the complex machinations of Collateralized Debt Obligations, then mystified further by the delusions of rating agencies, the crisis was above all a crisis of valuation. The metaphor of ‘toxicity’ of assets, which suggests that banks simply need to be hosed down by men in protective clothing, underplays quite how fundamental this crisis of valuation actually is. Neo-classical economics can no longer claim to know up from down, and would have been even more radically discredited had governments not made their multi-billion pound endorsement of the status quo in the autumn of 2008.
Risk models still give answers, but with how much confidence, they cannot ultimately express. An anecdote from within one rating agency is of how pre-2007 individual experts would be asked ‘would you put your own money on this risk calculation being correct?’, whereas now they are asked ‘would you put your own arm on it being correct?’. (So desperate is the search for foundations, the economists have discovered bodily mutilation.) That governments of Spain, Portugal and the UK shudder at the opinions of such agencies reflects on the latter’s power, but not their authority.
All of which offers an opportunity. When asking from where a recovery will come, we should start with the following question – recovery of what?
Growth in GDP is our instinctive answer, but this represents historical short-sightedness. GDP is a statistic that only dates back to the 1940s, and became a proxi for economic development somewhat by accident. There is nothing permanent about it. Work by Tim Jackson for the UK’s Sustainable Development Commission suggests that it might even be in our interests not to carry on growing it.
The ‘Stiglitz Commission’ on the measurement of economic performance and social progress, which reported to the French government in September 2009, was fortuitously timed. Despite being launched before the financial meltdown, it has benefited from the methodological chaos into which the economics profession has been thrown. Bringing together sociologists (such as Robert Putnam), philosophers (such as Amartya Sen) and psychologists (such as Daniel Kahneman) to ask profound questions about what and how to measure, the Commission was able to re-awaken the evaluative questions that lurk behind all statistics.
GDP is unlikely to be abandoned any time soon, not least because of the amount of administrative, political and media infrastructure dedicated to calculating, reporting and reacting to it. This is in addition to a more profound issue, that we have yet to discover ways of generating high levels of employment without growth. Yet the Stiglitz Commission offers some plausible ways in which GDP can be redefined to sit more closely with popular experiences of prosperity.
More broadly, the historic failure of neo-classical economics has opened up space for politics. The dependence of statistics upon moral and political presuppositions has become visible, opening up space for disagreement on what to measure. Think tanks such as The New Economics Foundation in the UK, which have been pushing alternative evaluative frameworks for years, are suddenly much closer to orthodoxy. There is a realisation that a society can choose to measure whatever it wants, and in turn evaluate itself as it pleases, as the State of the USA project argues.
While it is unsettling to have our trust in numbers shaken, it is also a form of awakening. It enables us to avert our attention away from the measure for one moment, and back to the measured. What we value, how we value it and then how we measure it are questions that lie dormant during periods of stability and prosperity, but politics is immature in their absence.
Whether, as many studies have suggested, happiness and wellbeing are how we ought to gauge ourselves (especially in a necessarily quantitative fashion) is questionable. But elevating some form of ‘social’ indicator to an official status no longer seems remotely far-fetched. There may be areas in which immaterial assets and value can be sustained and grown, in an era when material assets cannot or should not. Hippy nonsense? And what made so much sense about giving AAA ratings to financial products that relied on low income Americans keeping up mortgage repayments?
None of which is to under-estimate the severity of the current debt trap that we find ourselves in, which is always neo-liberalism’s most powerful tool of constraint. In many countries, individual and collective downward mobility is about to bite for the first time in over seventy years. Public goods are to be neglected. Until we find a way of breaking our addiction to macroeconomic growth, stagnation will mean unemployment.
Individually, student debt and pensions anxiety will be at the heart of any popular desire to get the old system back to health again. In countries such as Britain, a typical working life is now tied to debt for the education which launches it, and to the equity markets for the retirement which concludes it. Offering alternative indicators of prosperity, or throwing doubt on monetary values, is scant consolation for real insecurity. The fact that this insecurity serves particular financial interests is little comfort.
Yet a revaluation, in the broadest sense, will eventually arise, resting on new underlying principles of what and how to value. Neo-classical economics derived its account of value from individual rationality – something is more or less valuable in direct proportion to the money, time or effort that I am willing to spend selfishly pursuing it. Implicitly consumerist and reliant on an illusory depiction of the human mind, this was the underpinning of the “whole intellectual edifice” that Alan Greenspan reported as having collapsed in his 2008 testimony to Congress.
In search of new principles of valuation, we could do worse than return to the entity that launched the financial collapse: the home. It is significant that the Stiglitz Commission recommended gauging growth measures around household income, not aggregate national output. Ensuring that house price inflation is included in inflation measures is a further important task, for reasons of both stability and equality. Home ownership has become a major source of inter-generational inequality in many societies, breaking open the myth of meritocracy.
Restoring the intrinsic worth of houses and homes, separating them from the realm of speculation and petty bourgeois buy-to-let trickery, and producing more of them must sit at the very centre of any centre-left economic vision. The Right (including, for different reasons, far right parties) benefits when housing becomes dysfunctional, and inequalities are the result. Let us gauge our society in terms of its capacity to house people in comfort, and let us make that our definition of ‘efficiency’. A real recovery, one without illusions, would begin with this foundational economic unit and work from there.