The UK economy is in a depression now. So much for Quantitative Easing doing any good!

As we move forwards through 2012 we see that in so many countries economic output and growth is proving to be a disappointment. Today I wish to take the opportunity of looking at my own country the UK as it produces its latest Gross Domestic Product figures for the second quarter of 2012. We do not start from a good base as the last two quarters have been negative, with the last quarter of 2011 recording -0.4% and the first quarter of 2012 recording -0.3%. So according to the definition of two quarters of falling output the UK is in recession.

Worse than that in my view is the fact that for the last two years the UK economy has trod water and gone nowhere. The problem with that is that it was supposed to be the period of recovery! If you look at past recessions you see a dip followed by a recovery often a strong one. This time we see a recovery look like it was beginning after 18 months or so but it only lasted a year and then,very unusually fizzled out. Since then we have spent two years flat-lining at a level of economic output around 4% below the previous peak. In essence this has been the rationale behind my argument that we are more in danger of a depression than a recession. When historians review this period they may conclude that the (possible) depression of the 2010s has already started.

The Official Response

We have seen a proliferation of measures recently as what became called plan A -deficit reduction accompanied by expansionary monetary policy- hit the problem that with little or no economic growth it will always struggle. If we look back to forecasts we see that if we go back to the last Labour government we were expected to be growing at 3% a year right now. So we have “lost” 6% of output compared to that in the last two years alone with the obvious implications for tax revenue and spending.

Regular readers will be aware that I am a critic of all the monetary expansion and never expected it to work. But nonetheless we are getting more of it- another £1 billion of Gilt purchases by the Bank of England today alone- as the Bank of England ploughs ahead regardless. We are also getting more and more hints that they are thinking of further base rate cuts. This seems to ignore the obvious fact that if you cut by 4.5% (from 5% to 0.5%) and it does not work what is the likelihood of another 0.25% or 0.5% working?

Actually I have been surprised that the Monetary Policy Committee hasn’t reduced base rates further. The more cynical amongst you might attribute this to the fact that the Bank of England makes a theoretical profit via the fact that it charges for the money for Quantitative Easing at the base rate! So whats 0.5% of £334 billion annualised?

What are the latest numbers?

You might in the famous words of the BBC’s children’s programmes like to make sure you are “sitting comfortably” before you read this.

The chained volume measure of GDP decreased by 0.7 per cent in Q2 2012 compared with Q1 2012

So a bad number but why? In essence it was production

Output of the production industries decreased by 1.3 per cent in Q2 2012 compared with Q1 2012, following a decrease of 0.5 per cent between Q4 2011 and Q1 2012

Since the beginning of 2011 UK production has gone as follows; -0.1%, -1.2%,0,-1.4%, -0.5% and now -1.3%. Some might consider that to be something of a trend.

And in particular our construction sector remains a serious problem

Construction sector output decreased by 5.2 per cent in Q2 2012 compared with Q1 2012, following a decrease of 4.9 per cent between Q4 2011 and Q1 2012

This issue of the construction sector has been a problem for a while now. And I do not entirely mean the falls I mean that there is a lot of confusion and debate over measuring it which has been going on for a year or two. Let me illustrate this by using an “outside” measure so to speak from Eurostat which also measures UK construction output. Using its numbers for the three months to May gives you monthly growth rates of +14%,-18.3% and +6%. If that does not look very reliable to you it does not to me either! And that sums it up.It is clear UK construction output is falling but the amount is very unclear.

Service output is now falling too.

Output of the service industries decreased by 0.1 per cent in Q2 2012 compared with Q1 2012, following an increase of 0.2 per cent between Q4 2011 and Q1 2012.

Okay let us look for some perspective

If we look back over a slightly longer period we see this.

Production output decreased by 3.2 per cent between Q2 2011 and Q2 2012

No wonder we are in trouble with numbers like that. And I guess that you have already figured the worst component.

Construction output decreased by 9.7 per cent between Q2 2011 and Q2 2012

Still something is growing.

The seasonally adjusted index of government & other services increased by 0.3 per cent in Q2 2012, following an increase of 0.3 per cent in the previous quarter

Government & other services increased by 1.3 per cent between Q2 2011 and Q2 2012

So instead of a growing economy and shrinking public sector we have a growing public-sector and a shrinking economy! I guess Plan A and UK austerity need to go into my financial lexicon.

If the UK was in the Euro we would be focusing on this

Our period of flatlining now goes back three years or so. Our real GDP figures were reset at 100 in 2009 and we are now at 101.5. Even worse the latest quarter takes us backwards as we were at 102.2 in the first quarter of 2012. Back to 100 or worse? We cannot rule it out.

What would be reported if we were a Southern European economy right now? Let me give you one implication our government bond prices would be falling rather than rising.

Looking Forwards

The obvious issue is how we can get out of this malaise. The problem is that there are no clear signs that we are doing so. Yesterday we saw lending figures from the British Bankers Association which if you peer under the spin of the press release offer little hope. If we look at mortgage lending in June it was £7.2 billion which is £0.8 billion below the six-monthly average. If we go for mortgage approvals i.e likely future house purchases we see an even worse picture because that at £6.5 billion was some £1.7 billion below the six-monthly average. And of course these are numbers which have already fallen considerably.

As troubling is the pattern of business lending where every sector now has negative growth rates in annual terms. Rather worryingly considering the existing situation lending for construction appears to have taken a further downwards turn. Net lending to non- financial businesses fell by £3.2 billion in June. Anybody remember the promises of Project Merlin?


When the last set of UK economic growth figures were released I stood out from the crowd (who mostly took the easy route of declaring a technical recession) and expressed my fears that we are in fact in an economic depression.

I am finding it harder to shake off the view that when we look back we will think that yes we were in an economic depression.

Here is a link for the full article.

Since then the evidence has only confirmed me in that view. The fact that we obviously badly need a change of tack was one of the reasons for me applying to join the Monetary Policy Committee when the latest vacancy came up. After all the current policies of low interest-rates and ever more Quantitative Easing are hardly working are they? Their claims that they are look ever more hollow.

I remain of the view that until we reform our banking sector we will not see a genuine economic recovery. Our monetary system is broken and badly needs reform and pumping ever more money into it will not work until we do so. We should have learnt that from Japan’s two lost decades and until we do we run an ever increasing risk of repeating them.

I do not like to just criticise so her are my plans from last September.

Such a strategy would have dealt with matters such as the Liebor scandal. But more importantly would give us a base from where we can start afresh rather than carrying all the deadweight of past failure. Some of what we would find would be unpleasant and nasty but otherwise we run the risk of this. From the Eagles

And I know what’s been on your mind

You’re afraid it’s all been wasted time

And I will finish by pointing out that as ever I have followed my convention of dealing with the numbers as they have been published. That does not mean that I think that they are perfect and my critique of GDP statistics can be found at the article linked too below.



This entry was posted in Euro zone Crisis, GDP, General Economics, Growth, Interest rates, Quantitative Easing and Extraordinary Monetary Measures, Recession, Stagflation, UK Inflation Prospects and Issues. Bookmark the permalink.
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  • Anonymous

    Reform of the banking sector is a necessary but not a sufficient condition for a sustainable recovery. Wider supply-side reforms are essential.

  • Anonymous

    QE will fail just as it did in Japan. It just redistributes wealth and results in investors chasing real assets and not investing in productive assets. Someone has to take the losses after the bubble burst but it wont be the Economists in charge of QE……

  • Anonymous

    Hi Shaun
    Some real weird features to this : stable unproductive workforce , stark regional disparities, credit famine, expanding govt….the BoE boffins say QE has boosted GDP by 2% to peak, so recession is deeper than figures suggest?

  • JW

    Hi Shaun
    I agree with another comment today, your proposals for banking reform are required, but of themselves they are not going to make the difference. I continue to be amazed how ‘classical’ economists continue to overlook debt and credit. The western world is ‘maxed out’ on debt, deleverage has to happen, and consequently expenditure and GDP will suffer. Add the effects of globalisation, demographics and robotics and the old order is no more.
    I suggest if the you take out the ‘Olympic construction’ effect from 2010 onwards you will see the Depression you are talk about. As you know QE was never anything to do with stimulating growth, its all about supporting the Bond Ponzi scheme to keep national debt affordable and inflate away some of the debt. Trouble is it is having less and less effect on even this so shortly we will see yields rise and the SHTF.
    Japan has had 2 ‘lost decades’ , but it has kept its head above water because of its particular social structure. The UK does not have this benefit.

  • The_forbin_project

    hi shaun,

    Seems we went past Stagflation straight into depression

    so where does 3.2% inflation belong in a “output gap “   model ?

    Seems the BoE guys are just full of hogwash !

    that gurgling sound is just the economy  going down the plughole or certain other economists  choking /gagging ?   :-)


  • Anonymous

    What is a good country to emigrate to? UK? Germany?, US? Australia? China? Brazil? Russia? Perhaps none of the above. Increasingly I think that our best bet is another planet. Let’s fund some serious space exploration before is too late!

  • Spacemanc

    Shaun, you mention that they’re considering further lowering of the interest rate. What’s the effect that they’re looking for? Increased borrowing? More money in peoples pockets from lower interest payments? Weakening the pound to boost exports? All of the above?!?!?
    I think that really the government needs to look at where households are spending their money and be a bit more radical. With some very minor changes to the law, they could easily reduce the car insurance bill of the average household by £500 per year. Dropping some of the ludicrous green subsidies coming from our utility bills could save a few hundred more. Oh look, I’ve just given the average household a sizeable boost to their disposable income by doing hardly anything – people feel richer, they feel more confident and happier and it would probably have a snowball effect throughout the economy!

    Instead, everyone is seeing their disposable incomes shrink every year which has a snowball effect in the wrong direction!

  • DaveS

    We are insolvent – there is simply too much debt. The supposed economic growth of last 20+ years was financed by debt – the economy has been restructured towards consumer/housing/public sector spending (70% according Tim Morgan at Tullet). It would take decades to reverse these changes. Even if we still had the capability, China and the rest of the world won’t just stand aside.

    If we can’t grow, the deficits will continue until we are way over 100% debt to GDP. Its technical in the sense by then BofE will own half of it and it will obviously never be repaid – the “interest” just goes into a black hole I suppose. But when we hit that point – any pretence of a Gilt market will disappear – no foreign buyer will buy Gilts at levels we could afford – just BofE and their proxies – its Zimbabwe monetisation (if we aren’t already there).

    The debt is too large for our income – we can’t grow our income – so the debt must fall. Either we default directly or via inflation. What politician or BofE governor would go for default ? It means housing market crash, it means the death of most British banks, it means huge losses for the wealthy – it means full blown depression. I just cant see them ever doing it – I haven’t heard anybody in power even suggest it. Next year we have a new BoFE governor, in a year or two probably Ed Balls as chancellor – they will open the door for a wage/price spiral like the 70′s – i.e. 13% average for decade, 25% peak, RPI index went from 70 to 270. It won’t be a stated policy – it might start with sterling depreciation, inflation spike and “fair” pay settlements.

    That sort of inflation wipes out debt for sure. Some would argue it worked in the 70′s. My parents had a crippling mortgage of £3500 in mid 60′s – by 1980 that was the price of a new car – their house quadrupled in value (seven fold since mid 60′s) – they started to feel much better off. Its the ultimate roll of the dice.

    I feel its just a matter of time before they try this – its by far the easier option. The siren calls are growing louder – and it won’t just be the UK.

  • Anonymous

    The devaluation/inflation/slashing value of financial assets game is well known in the UK, having been tried several times in the last century. It does not work, but it gets politicians out of a hole of their own digging, namely spending more than the country can afford. The Left are particularly fond of trying to accelerate redistribution of wealth by borrowing excessively while the Right really have no idea what they are doing, but are experts at defending their turf. Nobody is looking after the centre, which is dangerous as that is where the taxes are generated. There are usually time limits to tolerance.

     In economic terms, the UK is fast becoming ungovernable as no political consensus exists, and more and more information is available about the ‘tax sins’ of various sectors of society, making consensus ever less likely. I would start with an honest appraisal of the country’s prospects, coupled with a compulsory module for 16 year olds, teaching them about how a country is financed. Just facts, no spin, so future generations have an inkling of what their politicians are up to.

  • Drf

    I believe the key difficulty is that most modern economists assume that
    “growth” is an infinite parameter!  It is not. Much research has been
    done to determine what actually leads to advances in civilization, and
    resultant real growth. The pattern is that civilization develops
    where eventually a stationary point on the curve is necessary before any
    further advance and further resultant real growth, and often there is
    then a turning point downwards prior to the next uplift.  As you have
    out again recently, Shaun, GDP numbers are in any case like most other
    statistics misleading, since they do not take proper account of real
    debasement and other factors; they do not thus actually correlate with
    real growth.

    Objective research has shown that once most people have acquired the
    trappings and benefits of an existing modern civilization, even if they
    have excess wealth, they do not then make many significant purchases of
    real things, except for
    replacement of failing devices and chattels. (Their expenditure on
    services may then also fall as they have a core already.) This naturally
    then causes real
    growth to fall and leads to these plateaus and turning points, because
    everyone with sufficient wealth has acquired all which they want. (For
    this reason the very
    wealthy do not know what to do with much of their money, and they pour
    money into fatuous items like fine arts, forcing the price of these to
    astronomical and unreal levels.) In addition, excessive taxation, high
    costs and low income prevent the poorer members of society from
    acquiring what they
    might desire.  These factors all contribute to these plateaus occurring.
    In addition the main limiting factor is technology, which leads to the
    advance of civilization; with each further
    advance of technology larger amounts of capital are necessary to achieve
    further advance from the existing plateau. As I have explained
    previously on
    this blog, many economists and others do not understand the effect that
    debasement has in this respect.  Debasement causes existing enterprises
    to be forced into a position of over-trading, unless they can replenish
    their operating capital base to compensate for the debasement. It also
    restricts the necessary investment
    in R&D to achieve the technology necessary for the upward exit from
    the present plateau, which is an increasingly large amount of capital, much larger and larger to exit each plateau. Very few enterprises will invest for the future in an economic
    scenario like that at present; and in any case it is much more difficult
    for them to raise the necessary additional capital to do so in any
    severe recession or depression. The payback periods for such investment are increasingly long. This all conspires to prevent further
    growth, and eventually civilization does not progress.

    So it can be seen that QE (debasement) largely contributes to this disaster and
    cannot possibly stimulate any economy.  (The example of Japan for 20
    years illustrates the essence of the problem as you point out here.) A
    sound economy requires sound
    money.  Real investment to produce real wealth and real growth will not
    occur unless there is sound money and a
    sound economy; after all, what are the prospects of being able to show a
    return on long-term high-risk investment in an economic situation like that existing now? 
    Clearly the greater likelihood is that you would make large losses.  So
    the present policies being implemented are the opposite of those which
    are necessary to achieve real growth from the present plateau.  Until
    these erroneous policies are corrected there can be no real growth from
    the present plateau, only further decline, and it would take a long time to repair the real
    economic damage
    done by the absurd level of debasement which the BoE and government have
    so disastrously implemented, and have no intention and now no ability to
    ever correct, even if it were actually possible. (Probably global war is the
    only likely outcome, as it was from the last Great Depression.)

  • Sofpa

    Time to stop the ZIRP.

    Increase IR in order to stop inflation. Allow the overdebted to default (they had 3-4 years to get out of this situation).

    Stop the benefits for many classes/generations and cut down the unions and the public sector.

  • The_forbin_project

     totally agree on the debt problem – the main killer for the UK is that we’ve based our “economy” on building houses !   apart from the obvious that there’s only so much land ( SE esp.) to build on,  you cant keep inflated over priced rabbit hutches  going when the wages of the workers who buy them are falling !

    We need to reset this but the issue is that if prices went back to pre bubble times – our banks will need another bailout and the construction industry will go bust as well.

    not gonna happen – not without our politico’s screeming and shouting all the way  -can you see the headlines ??

    bung in the fact that  raw material prices and food prices are inflating away whats left of the purchasing power we have  then you can see we are on a the brinks edge of a major Depression………

    Scary ? should be , but I’ve got some popcorn here and waiting for the show to go on !!


    armageddon coming soon – watch with popcorn and beer  :-)

  • The_forbin_project

     Canada , Australia and even parts of the USA ,  any place with still good natural rescources with nominal democracies


  • Anonymous

    I want to emigrate to Iceland. They have found a way forward by tackling the root cause……”The Banksters”  I believe they are even using bounty hunters to   track them down.

  • DaveS

    Couldn’t agree more – they think they can control the inflationary spiral – inflate the debt away and recover like the 80′s. I doubt it.

    Last time the IMF bailed us out – this time our debts are way too big and the IMF will be as good as bankrupt itself. Last time we had gold reserves – this time we have US treasury paper. Last time we sold off our industry – both literally via denationalisation and more damagingly via globalisation – this time we have errrr, central London real estate ?. Last time we had the bonanza of North Sea oil – this time we have to beg the Chinese to build us nuclear power stations. Last time we had the explosion of the City – this time the implosion.

    This time we have Ed Balls or George Osborne – need I go on ! 

    I suppose things looked bad in the mid-70′s but seriously what if there is no way out of this mess ?

  • DaveS

    Nuclear weapons spoilt the war option.

  • DaveS

    By default do you mean they keep their houses or lose them ?

  • DaveS

    They need a fair days pay for a fair days work……….Ed will give it to them.

  • DaveS

    If BoFE monetise all the Gilt issuance going forward then why would yields rise ? They will print to keep yields low – they have to – if they allow a sell-off to take hold we will soon find ourselves alongside Italy/Spain – they can’t allow that and the market knows it.

    In reality they don’t have to buy everything as UK banks and pension funds will always help them.

    Also I suspect we will soon have other off-balance sheet QE exercises that don’t involve Gilts. Maybe a “National Enterprise Bank” – issuing its own govt backed debt, or purchase of existing bank debt, more PFI etc. Its easy for them to create off-balance sheet schemes that have the word “growth” in them and don’t hit the national debt to GDP ratio. 

  • Anonymous

     A nice insight. Necessity is called the mother of invention. Or put another way – when a society is comfortable it has little incentive to create new technology.

    Technology also can take great leaps during a war – aeroplanes advanced from almost nothing in 1914 to useful tools in 1918. Computing, semiconductors, rockets and nuclear reactor technology advanced greatly between 1939 & 1945.

    Sadly I have to agree that war is a very possible outcome, only because our politicians lack the integrity/honesty/ability to make tough decisions which will work in the long run.

  • Rods

    Hi Shaun,

    Thanks for another great blog.

    Maybe the Olympics will provide a smaller decline in this quarter.

    Another counter cyclic expense that starts in October are compulsory pensions with this ramping up in 2013 and 2014 until employer / employee are paying an 8% combined amount of an employees wages. The minimum contribution is 3% for employers, which will mean 5% for most employees. This is going to do wonders for employment and also economic growth in these challenging times. Unfortunately, we had the best funded pensions in Europe until Gordon McRuin stopped tax relief on dividends along with a lost decade with share prices, again I think this was largely due to taxes rises, a growing public sector and increasing red tape for industry, squeezing the private sector.

    Although there is scope for some very limited supply side reform, like stripping the gold plating off many UK implementations of EU directives. With so much employment legislation coming from the EU, I think at best all that will be achieved is a bit of swimming against the tide.

    Where the Governments strategy has been generally to cut capital projects and little else as part of making their spending go up a bit more slowly, then this along with the completion of the Olympic stadiums and village may explain the massive drop in construction. Most of the builders I know at the moment have a lot of work where people are tending to extend and refurbish their houses, rather than move.

    Green spending the attempted creation of Green industries has been a disaster in Spain with this folly also being repeated over here. Windmills are a poor energy generation solution with a poor return on investment, which is push up electricity prices at a time when we don’t need it.

    I see the upward trend with fuel prices is continuing with petrol up by another 1p/l this week, so will the trend continue with 1p a litre rise every week. With the pound dropping against the dollar, I wouldn’t bet against it.

    How do we get out of this mess? Well it is s bit like the Irishman giving directions. “If I was you I wouldn’t be starting from here”. But we are where we are and I think things are going to get increasingly ugly. I hope the chancellor has plenty of hats and rabbits and is taking lesson off Paul Daniels for his November statement, but judging by his recent record, I fear we are more likely to get some classic Tommy Cooper!

    My record for the day is a bit of Quo: Down, Down.

  • Anonymous

    Hi Derrick

    Agreed but in my opinion we need to start with the banks. Not only are they the obvious source of a credit crunch problem but also I think it would lift the cynicism and low level of expectations in the wider economy.

  • Anonymous

    Hi Ian

    Japan expanded its QE programme at the last Bank of Japan meeting and officials have today hinted that there could be another stimulus. Nice of them to so neatly illustrate my “More.More,More” musical theme.

  • Anonymous

    Hi Shire

    Or the Bank of England boffins are wrong! if we consider the position we see that no doubt they have used the same models which have a shocking record recently of forecasting the UK economy.

    But you are right there are many unfamiliar features to this depression. Let me add one more we have discussed before the way that unemployment/employment is doing better than you would think given our GDP performance.

  • Anonymous

    Hi JW

    I agree entirely that bank reform on its own will not be our salvation, but it is the best starting point in my view. If other reforms start first a lot and maybe all of their effect will be wasted by our damaged monetary system.

    Also I think that seeing a “sacred cow” challenged would lift the mood and influence psychology. In determinate factors perhaps but I believe that they are at play right now in a negative way.

  • Anonymous

    Hi Forbin

    You are making it sound like Douglas Adam’s book “The Restaurant at the end of the Universe”!

  • Anonymous

    Hi Hopping Pot and welcome to my blog

    Actually I do not believe that Iceland is out of the woods yet. However she has summoned the courage to make moves which help as opposed to the Euro area which in essence has chosen its banks over its people.

  • Anonymous

    Hi Spacemanc

    Actually I have been surprised that they have reduced the UK base rate below 0.5% before. Whereas my view is that we are in a liquidity trap where it will not help partly because of the gap between official interest-rates and the ones individuals and comapnies pay and receive.

    “Dropping some of the ludicrous green subsidies coming from our utility bills could save a few hundred more.”

    Problem is that would need to be done by the same people who have just imposed them!

  • Anonymous

    Hi DaveS

    Actually the heat will start soon elsewhere as places like Spain have to face up to their own problems but within the Euro straightjacket. We at least have flexibility in our currency and interest-rates that they do not have.

    A lot of other problems will have to be faced up to include the fact that the IMF will have to take serious losses for the first time. So there is much to develop.

  • Anonymous

    Hi Sofpa and welcome to my blog

    I have been arguing for some time that we need to get ourselves out of the liquidity trap that ZIRP (Zero Interest Rate Policy) has plunged us. Once we cut base rate below 1.5/2% there have been no gains and I am coming more and more to the view that we have seen losses.

    An economic model which covers what we consider normal interest -rates breaks down in my view as we approach zero.

  • Anonymous

    Hi Drf

    What I fear is something like the Long Depression of the 1870s,80s and early 90s where we get a grinding out slow stagnation.There are times when it looks better and times when it looks worse but like a Black Hole it keeps dragging you back in. And of course we have the ongoing Lost Decade in Japan which it turns out they named too early as it is still progressing…

  • David Lilley

    The -0.7% decline in UK GDP is bad news. It isn’t an annualised figure but the decline in just one quarter and must be set against an anticipated +0.7% increase for the year 2012, which itself is a far cry from initial estimates of +2.5% for 2012 made some two years ago.

    So definitely depression statistics. But not just our depression statistics but the West, including Japan, in general.

    How do we fix it?

    Answer. We first identify the problem and then propose tentative solutions, practice error elimination, refine the solutions to eliminate error and repeat until we have a working solution. This is the scientific method.

    But the most important part is to correctly identify the problem in the first place or all that follows is wasted energy.

    The problem is that we in the West have an ageing population and China discovered “naked capitalism”.

    We must delight in the fact that China is feeding 1b people better than it ever has. Ben Benancke has always praised this acheivement and so he should. But where does it leave us, the UK and the West.

    We need stuff and that need makes the world go round. But we in the West cannot make stuff. We are hit by the 95% factor, China can make the stuff, of whatever quality is specified, for 5% of the cost of making it in the West.

    We must solve the 95% challenge.

    Some specifics:

    1. Detriot car worker on $36 per hour versus Chinness car worker on £2 per day. And China owning the technology of Rover, Volvo and Saab.

    2. Addidas paying £10 for 60 hours for a Malasian worker verus £10 per hour in the UK. And getting a worker with a capital “W”.

    3. 36% of our best resource, working age males, not working.

    4. Our servants, doing our bidding, will pay £30,000 for 104 weeks service for a soldier but the same for 4 weeks service for a temporary security recruit at the Olympics and the latter have a 7% show rate because they don’t wish to compromise their benefits.

    This list is endless but is capped by a single statistic. A child is killed by infanticied every 28 minutes in the US and every two days in the UK (peaking at one per day some four years ago).

    We don’t so much have an economic problem as a cultural problem. Our global competitors work whilst 36% of our male working age population don’t.

  • Anonymous

    Malaysia & China have cost advantages as a result of being outside the common agricultural policy (consumers lose, landed gentry gain huge subsidies) and the Brussels tax net. The UK also has huge housing costs kept up by planning regulations and housing benefit.

    We provide the 36% with economic incentives to avoid work. We pay benefits for the unproductive to breed. While these freeloaders get a vote, reform is near impossible. Maybe the American workfare program is the fairest way forward. You work for your benefit – those wanting a job will be happy, the workshy and those cheating in the black economy will be inconvenienced.

  • DaveS

    We may have more flexibility but I feel our great leaders will just use it to hang us as they are doing now with QE. In fact I think the real problem is that we are way past the point of messing with interest rates and money supply or credit – I feel the economists are fiddling whilst Rome heats up (if not burns yet). The problems are much more fundamental in the economy and can’t be solved by pulling  economic  levers – in fact they make things worse – its partly why we are in this mess now (e.g. Greenspan dropping rates after dot-com blow up).

  • JW

     ’Real’ US unemployment numbers show this isn’t working anymore either. Over 50% of families in the US get state handouts now. The ‘American model’ is dead. 

  • JW

     Shaun, the only way to reduce the size of the ‘event horizon’ is to reduce the mass of the black hole. That means debt forgiveness on a massive scale.

  • Anonymous

    We have a welfare system that penalizes hardworking middle class people who save and rewards the cheats and the lazy.
    How do we prevent abuse of the system ?

    How do we reduce the welfare bill ?

  • Chris F

     Just a quick thought or 2 on unemployment.
    It’s not necessarily the quantity of folk unemployed that is key – it’s where the employment is.
    1) Most businesses have been getting leaner for 5yrs or more,a nd there’s not much they can trim further.
    2) Growth employment is from the mature sector (experienced, flexible, not too fussy and unable to live off their investments), and from self-employed (desperately trying to make a go but ultimately most of these will be doomed to failure).
    These factors are more in line with a depressed economy – yes there are jobs – but they’re generally poorer paid, and short term.

    Youth unemployment is the worrying thing with respect to growth going forward – if they’re not getting the work now, then we will be short of a generation of employment creators in 10-20 years from now.

  • Patrick, London

     When Douglas Adams’ explained how the Restaurant at the end of the Universe works, and how one can only afford to visit it, by placing a small sum in a savings account in your own time so that the accrued interest at the end of time is enough to pay for a table… I don’t think he was aware of the impact of Quantitative Easing and ZIRP.Although if I remember rightly, he does follow up by adding, “This is of course, impossible.”

  • Patrick, London

    ‘nominal’ (chuckle) Unnerved by suppposed young earth leanings of Canadian PM, the middle of America is all too willing to be brainwashed, and Australia has more creatures that can kill you with a bite or a sting than any other country on the planet.How about Chile or Norway? I read good things about both…

  • Patrick, London

    If the reform could be combined with retrospective legal action, involving custodial sentences, asset removal, and ideally, some stocks/pillories type shenanigans, then maybe. The redistribution of wealth that has taken place over the last 30 years is sickening to me, in both directions. A tax system at the low end that punishes the worker, and rewards the benefits system abuser, and salary levels to professionals, bankers, financiers, ‘celebrities’ sports stars etc, that are beyond obscene, and rank amongst some of the most damning examples of our stupidity as a species. So, reform the banks, let punishments be meted out, and FFS, increase the lower income tax threshold to at least £15,000 if not £20,000.