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Café Economique – From Economic Crisis to Recovery?

Next Café Economique – From Economic Crisis to Recovery? – Past experience and present prospects

The next Cafe session, on 6 November, will be led by Hugo Radice, and will explore the strength,reality and sustainability of the current economic “recovery” in the light of experience of previous “boom and bust” cycles in the UK, European and gobal economies. For more details, see below.

Time:

Doors open and refreshments from 7pm.
Speaker and discussion from 7.30 – 9.30 pm

From economic crisis to recovery? Past experience and present prospects

During the summer of 2013, the UK economy was reported to have registered modest growth, rather than the widely-expected ‘triple-dip’ recession. Chancellor George Osborne has hailed this as the first stage of recovery, and as a vindication of his austerity policies.

Does this mean that the crisis is over, and the recovery really under way? If we measure the extent of ‘crisis’ only by the recorded figures for real Gross Domestic Product – the value of the production of goods and services, after allowing for price rises – then it seems likely that, at long last, we have turned the corner. But there is still a long way to go.

First, it’s important to remember that capitalism has always undergone cycles of boom and bust, despite periodic claims that they have been abolished – most recently by Gordon Brown. Recovery is kick-started often simply by the fact that stocks of materials and parts, after being run down to save money as production falls, finally reach a level where they have to be bought in, if any production at all is to take place. Even a modest rise in stock-building can be enough to stimulate output down the supply chains, leading to rises in employment and incomes; this in turn increases retail sales to households, which stimulates output further.

Second, however, the pace at which this happens can be relatively fast – or painfully slow. Right now, even this first stage of recovery is hampered by the lack of growth in the Euro-zone, and by great uncertainties in the wider world economy, so there’s little or no stimulus coming from exports. Investment by businesses has also not recovered; though there have been announcements of major projects, e.g. in the motor industry, these have yet to be actually launched. In fact it has been argued that in the first half of 2013, the only real growth has resulted from an increase in public spending – whether deliberate or not is unclear.

Third, if the world economy picks up pace – still a big ‘if’ – then we can expect both export demand and investment to rise through 2014. The government is pinning its electoral hopes for 2015 on this actually happening, and current forecasts from the Office for Budget Responsibility support their belief. But the OBR has become notorious for consistently being too optimistic, ever since it was set up in 2010.

Fourth, the emphasis by unions and the Labour Party on the crisis in living standards reflects the fact that most households have suffered significant cuts in their real incomes since the crisis began – often of 10-15% since 2008. Until and unless incomes start to rise, families are unlikely to increase their spending very much. This explains why the Coalition is encouraging a return to 95% mortgages with its ‘Help to Buy’ scheme, which most banks and other lenders are reluctant to join for fear of repeating the mortgage bust that triggered the crisis in 2007-8.

So yes, a recovery of sorts has begun – but it is very fragile, and still lacks any real momentum. The alternative approach, which Labour remains very reluctant to adopt fully, is to junk the austerity approach, and take advantage of the continuing low cost of government borrowing to halt the cuts and bring in a massive programme of public investment in infrastructure, health, education and training.

Hugo Radice
7 October 2013

Please note: Whlist we do not charge for entry, a voluntary contribution of around £2 per person is appreciated to cover the cost of room hire, refreshments and speakers’ (very) moderate expenses. Many thanks!

http://www.cafeeconomique.org.uk/

Join or login to comment.

  • Steve

    Sorry, something's cropped up so I'm no longer able to attend, unfortunately

    November 6, 2013

  • Adrian

    i'd like to make this one , but will have to play things by ear a bit

    November 6, 2013

  • Rob W

    hope to make it. anyone stopping for a further chat / pint after? can anything be done to bring about change?!

    October 25, 2013

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