Wednesday, 12 August 2020

A Depression Made in Downing Street

You've seen the numbers by now. Measured in GDP terms, the UK economy collapsed by a fifth between April and June. It would have been much deeper hadn't June in and of itself recorded a dead cat bounce of 8.7% growth. As Rishi Sunak says, this recession is unprecedented because the crisis precipitating it is unprecedented. True, true. Then riddle me this. Germany, down 10.1%. Belgium 12.2%. Blighted Italy, 12.4%. And even Spain, with a catastrophic a fall of 18.5%, fared better than us. The UK is the sick man of Europe again, both literally in the numbers of dead and people infected, and a far worse economic performance than any EU state.

How might we account for this? We can be generous and note the UK's over-dependence on services, which comprise 81% of the economy. Germany's is just shy of 70%, Italy's is 74%, and ditto for Spain. Naturally, any country so dependent will suffer a huge contraction if social distancing is enforced. All the more reason why the Tories were loathe to take the Covid-19 threat seriously, and why they're keen to play down the crisis with jiggery-pokery over statistics, set arbitrary dates not at all informed by the epidemiology for lifting restrictions, and Gavin Williamson's outright denial of children as possible disease vectors to get schools reopened.

Leaving aside the UK's relatively unique exposure to a biopolitical crisis, the next obvious (if crass) point is more excess deaths and people who are sick = fewer participating in economic activity. But when you compare the UK with Italy and Spain, we are talking relatively small numbers and certainly not enough to account for the performance gap. What gives?

Firstly, timing. Going into lockdown later than most other European states did not confer the UK a brief competitive edge of any sort. Rather, it prolonged the formulation of the economic support package. The lockdown officially, and reluctantly began on 23rd March. Prior to this, on the Friday the government announced the furlough scheme, which did not go live until 20th April - almost a month later. For smaller businesses there were packages of loans and interest-free credit lines, but it was not enough and it came too late for some. Tens of thousands of businesses either shut up shop, or simply laid off staff to cut costs their much reduced operation. By tarrying, hundreds of thousands of people were left without an income and the Universal Credit hotline was duly overwhelmed. Other European states moved earlier, and so protected their economies better.

The second problem was furlough itself. Paying up to 80% of staff salaries was a significant cut for many people, but there were also those excluded from the scheme, such as the self-employed and freelancers, and those who were caught between jobs. Most other schemes were more comprehensive.

Thirdly, social security support. Remember, the six week wait to even receive support (reduced to five by caring, sharing Theresa May) was introduced when Iain Duncan Smith was at the DWP as a means of "encouraging" people to find work. Because, again, in topsy-turvy Westminster land there are MPs on both sides of the Commons who think welfare causes unemployment, not lack of jobs. And so a couple of million people were left with nothing while their claims were processed. And once they were? Universal Credit entitlements vary, but they're hardly generous. For instance, Jobseekers' Allowance tops out at £74.35 for the over 25s and £58.90 for 18-24s. Compare this with, say, Germany where 60% of your salary is paid up to a value of roughly £1,725/month. The Italian system is less generous, but more so than the UK's - 75% of salary up to the first €1,195, and 25% of anything over that to a maximum of €1,300, but with three per cent deductions each month after the fourth month. Spain runs a not dissimilar but more generous model. In other words, the spending power of the unemployed in each of these states is greater and therefore contributes to a shallower dip.

Want more? Sick pay. Statutory sick pay is among the weakest level of support offered in any advance economy. If you're ill, you can get a princely £95.85/week provided you meet the conditions, and for up to 28 weeks. In Germany, for up to six weeks an employee is entitled to 100% of their salary. In Italy it's 50% of daily pay between the fourth and 20th day of illness, moving to 66% from the 21st day. In Spain it's 60% of salary. Again, the same observations apply. For most workers in the UK, a long-term period of illness means penury. Needless to say, the UK is the pits when it comes to redundancy payments too.

It doesn't have to be like this, of course. The Tories particularly hate working people for all their flattery for them. The typical worker is needy, feckless, dishonest, lazy and, very occasionally, dangerous. Simply put, for 40 years the Tories - and New Labour - have designed a welfare system that punishes instead of supports, and reflects their real feelings about the employee class. All those decades using social security as a football to kick the most vulnerable in pursuit of votes (and labour discipline), combined with the particularly cruel turn policy took after 2010, and Johnson's own disastrous handling of the crisis is behind the crisis. The reason the UK is in the deepest depression, or rather a deeper depression than it had to be, is because of Tory policy, Tory incompetence, and Tory callousness. This is a crisis made worse by Downing Street, and it's Labour's job to pin this on them.

Image Credit


Blissex said...

«the UK economy collapsed by a fifth between April and June. [...] Germany, down 10.1%. Belgium 12.2%. Blighted Italy, 12.4%. And even Spain, with a catastrophic a fall of 18.5%, fared better than us.»

I don't exactly believe any of these numbers, except perhaps Germany's. Part of the reason is that the reported falls in GDP seem way too low to me for the main "lock-down" period. Part of the reason is that how well we'll do will depend on the final outcome, and for now we are just after the 1st wave part of the COVID-19 story.

But the main comment I have is that the schemes of most governments have been very wrong in trying to support "the economy" too much, GDP should have fallen more, at least in principle.

The normal story of a recession/depression is that somehow consumption falls and this leads to less production and thus income for workers, and this leads to lower consumption still.
In those cases the fix was described by JM Keynes: make sure that the total amount of incomes of workers does not fall and business production and investment will recover if consumption is not expected to drop.

In this case however reducing GDP was *the primary goal of policy*: to prevent contagion.

In this the GDP crash was intentional, and similar to the crash of civilian GDP during wartime, when civilian GDP are cut deliberately to have capacity for military production and consumption. In our case, to have capacity instead to prevent people consuming or producing together.

So the intentional GDP crash should have been handled like in wartime by a reduction in total incomes (not just workers), a tax on savings, and redistribution between the most affected and the least affected sectors, because avoiding contagion is a common good just like fighting a war, and the reduction in GDP should not be suffered only by the sectors (both businesses and workers) with the greatest risk of contagion in either consumption or production. So for example a large tax on income from house rents to fund payments to the catering and education and most retail businesses and workers, etc.

Consider the effects of not reducing total wages: production in some sectors has collapsed, reducing considerably supply, and if wages are not reduced, that means the same amount of money chasing the remaining supply, or much more of the wages to be saved, either inflating asset prices, or being spent in the future with goods/services inflationary pressures. Consider the effects of not taxing away a chunk of savings: people with lots of savings can spend them driving up inflation because the fall in production.

However reducing total incomes to reduce the mass of purchasing power chasing the same quantity of assets and smaller production, and redistributing the resulting appropriate level to compensate fairly those those who suffered most from the anti-contagion measures, would be very politically unpopular, so many governments have done too little, too expansionary, too late.

I know several people who work in sectors not affected by the lock-down and who have continued to receive 100% of their wages: well, their spending has fallen a lot, being largely limited to groceries and some remote working stuff, and they have saved a lot of what they used to spend on eating out, entertainment, clothes, etc.
People who lost most of their income obviously had to dip into their savings instead, if lucky to have them.

But most tory voters are going to be fine, asset prices are going up, delayed rents will still be paid, they will be angry that their "income" investment funds took a hit on dividends, but those will be restored. It will be workers, especially those with no or negligible savings (most workers) and those in sectors with crashed consumption or production who pay most of the price, even if the furlough 80% has helped many.

Blissex said...

«The Tories particularly hate working people for all their flattery for them. The typical worker is needy, feckless, dishonest, lazy and, very occasionally, dangerous.»

Seems to me to be more contempt and spite than hate. Perhaps some middle class people feel "exploited" by "lazy, scrounging" working class people and then resent them, but that's not quite hate either.

«their real feelings about the employee class.»

My impression is that they still think of them as "servants" in this country, more than employees.

«All those decades using social security as a football to kick the most vulnerable in pursuit of votes (and labour discipline), combined with the particularly cruel turn policy took after 2010»

My usual quote from Ian Duncan-Smith as reported by "The Telegraph":

«He said he resigned because he lost the ability to influence where the cuts will fall, adding: “The truth is yes, we need to get the deficit down, but we need to make sure we widen the scope of where we look to get that deficit down and not just narrow it down on working age benefits ... otherwise it just looks like we see this as a pot of money that it doesn’t matter because they don’t vote for us, and that’s my concern. I think it [the Government] is in danger of drifting in a direction that divides society rather than unites it. And that I think is unfair. ... This is not the way to do government.”»

«and Johnson's own disastrous handling of the crisis is behind the crisis. The reason the UK is in the deepest depression, or rather a deeper depression than it had to be, is because of Tory policy, Tory incompetence, and Tory callousness.»

As per my previous post it is not in as deep a depression as it should be, but the distribution of the impact, both economic and in terms of deaths, has been very unfair, and that is entirely because of Conservative policy.

But look at it from the point of view of the affluent middle classes in the Home Counties and London, have they been bombarding their tory MPs with complaints? No, they are doing fine so far, even if many more of them have died of the virus than they should have, but then their heirs are fine. The Conservative lead over New New Labour, which had a shrunk a bit because of the Cummings story, has widened again.

So how is Starmer going to steal a chunk of their voters from the Conservatives by attacking the government's awful, but mostly awful for people already voting Labour, handling of the health and economic side of this crisis?
So why should he make the effort?

Boffy said...

Best by far in Europe is Sweden which was down by only 8.6%, and that is mostly down to the effects on its economy from trade with other EU economies that have been wrecked by government imposed lockdowns.

Its performance in relation to COVID mortality per capita is better than for Britain, and as countries that locked down failed to deal with the underlying issue of developing herd immunity, so they are all now experiencing a surge in infections and deaths once more, as they try to escape from their lockdowns. Swedden fces no such problem as it never locked down to begin with.

The US yesterday saw its inflation rate surge by the most in three decades, and that is bound to happen elsewhere as reckless money printing to finance borrowing, to cover unproductive consumption whilst production has been slashed, and productivity cut causing costs to rise will feed through to rapid rises in inflation everywhere. In fact, the ONS has already showed that in Britain the inflation in relation to price of what people can actually buy, as against the prices of things they can't, has already surged. And, as other businesses open there are clear signs of prices rising. There are reports of hairdressers doubling their prices, for example.

These are similar conditions to those of the Weimar Republic. Because Sweden never locked down, it has not had to have a furlough scheme, but it is such schemes that will be devastating for countries like Britain in coming months, because they have led to astronomical levels of borrowing. As that is converted to payment of benefits as unemployment soars, and as governments have to bail out bankrupt businesses in airlines, aircraft production and so on, the inevitable consequence is going to be surging interest rates.

There is already lots of volatility in that area, and very low absolute yields exacerbate that as small movements translate into huge proportional moves. Yesterday, for example, the UK 2 YR Gilt Yield rose by over 300% at one point. It means a financial crash is imminent, and that will have its own substantial longer term consequences.

George Carty said...

Boffy: Best by far in Europe is Sweden which was down by only 8.6%, and that is mostly down to the effects on its economy from trade with other EU economies that have been wrecked by government imposed lockdowns.

Are you sure that Sweden's (milder) social distancing measures (eg gatherings of over 50 people were banned) had no impact on its economy?

BCFG said...

Has there ever been a more dishonest idiot than dumb fuck Boffy. Serious question?

Sweden halted international travel into the country on March 19. They then benefited from the fact that everyone else locked down! So not only did Sweden close their borders early to prevent transmission, they also benefited from the fact that everywhere else locked down.

So Sweden locked down harder and earlier than Britain and then was able to relax this and take advantage of everyone else locking down. Iraq was obliterated for a lot less than this.

Everything Boffy says in relation to herd immunity is contrary to the latest scientific evidence. Boffy is simply an alt right loon conspiracy theorist spreading lies. And he is spreading lies that can cost lives. He really should be stopped.

Boffy’s idea that a surge in infections is due to the fact we locked down must rank as the most dishonest and idiotic statement he has ever made, which is saying something.

Let us get back to basics here, this virus spreads mainly by human to human contact, via droplets. Lockdown and social distancing prevents this spread, not having a lockdown exacerbates the spread.

Yet Boffy logic says no lockdown equals no infections, but lockdown equals surge in cases because you have to come out of lockdown! What a dumb fuck.

The latest data suggests only 6% of people in Britain have had Covid-19, for Sweden it is around 6.5%. Do the maths and then imagine the death figures if lunatic, murderous Boffy and his cabal of alt right nut jobs gets their way.

We do not have to come out of lockdown at all, no one will die if space hoppers are not getting produced.

What we are all suffering from is a capitalist world system where you stand and fall in the marketplace.

This crisis has shown this state of affairs has no long term sustainable future. Anyone not seeing that is an arch recationary.

I always knew Boffy was on the Brexit side of politics, I always knew he belonged to the Bolsonaro wing of the far right, and now he stands with the Telegraph, those 5 million small businessmen and their families peddling lies and misinformation.

I have been telling everyone all this for years now.

Anonymous said...

“The US yesterday saw its inflation rate surge by the most in three decades”

But the US inflation rate is still below pre Pandemic levels! Funny how you forget to mention this in your ‘analysis’.

Lies, damn lies and Boffy!

Boffy said...


I'm sure the measures introduced in Sweden had some effect, that is why I said that "most" not all the cause of the 8.6% drop was a result of the effect on its trade caused by the crash in economic activity of its trading partners in Europe resulting from them imposing the lock-outs.

Boffy said...


I don't know if you saw this interview with a socialist epidemiologist on Jim Denham's Blog which says pretty much what I have said all along. For example,

"80% of infections were not being picked up as cases, being asymptomatic or being accompanied by mild common symptoms that would not reach medical attention."

On not opening schools until zero COVID,

the "aim is, in my view, unrealistic...This completely fails to recognise the huge and lasting adverse consequences of interrupted education, especially for the poorest in society."

"One of the things we know about the virus is that it is extremely selective as regards the people who become sickest, with age being the strongest influence by far. The average age of deaths is over 80."

He points to the certainty by which ridiculous claims about 500,000 deaths were made, which were totally unsupported.

"Seasonal influenzas have on occasion led to more deaths than Covid in younger age groups, and even with the four previous endemic coronaviruses there have been outbreaks associated with deaths in care homes. Boris Johnson and others have conveyed that this is the worst health crisis of anyone’s lifetime; but the 1968 flu epidemic (let alone the 1951 or 1957 outbreaks) was more deadly"

"The tragedy with the care homes in Britain was that by 23 March it was well know how age-selective the virus is. The shielding of institutions where a large proportion of people are susceptible should have been done properly."

BCFG said...

Like a demented climate denier Boffy picks out quotes to suit his idiotic and dangerous assertions. All the while ignoring the body of scientific opinion.

Like Trump, Bolsonaro, The Brexit loons and the 5 million businessmen and their families.

George Carty said...


While BCFG is clearly trolling you (for example by accusing you of being "on the Brexit side of politics" even though it's obvious from reading your blog that you are extremely anti-Brexit) he does have a point with his scepticism of herd immunity.

Sweden is still nowhere close to herd immunity: a study released on May 20 by their Public Health Agency showed that in Stockholm county (the worst-affected area in Sweden) only 7.3% of the population had Covid-19 antibodies.

And one important factor (that no-one here has mentioned yet) is that a major factor in Sweden's lack of lockdown in was its constitutional setup, which contains no provision for declaring a state of emergency outside actual wartime, and where the constitution can only be changed by passing the relevant bill twice with an intervening general election.

Boffy said...


BCFG/Sentinel/DFTM/CAAC ad infinitum can never have a point precisely because he's a troll. To have a point you have to actually beleive in something rather than simply throw out mindless crap solely for the purpose provoking a flame war by saying outlandish things in opposition to an opponent in the hope they might respond. Back when he was writing as The Sentinel, and I was new to these things I did respond to him, as I did when he wrote as BCFG - a persona he dropped for years before resurrecting it - but there is no way I would respond to him now.

On herd immunity, the point is that its a perfectly well established, scientific term that has been used for a long time. It was seized upon by morons, because of the optics of "herd", and used to score cheap opportunistic points, but the truth is that the way epidemics have always been ended is via herd immunity whether acquired naturally via infection, or artificially via the use of vaccines. There is no likelihood of a vaccine any time soon being rolled out, that it will actually work, or that enough people would take it. Already in the US, the same kinds of morons are part of the ant--Vacc brigade, and 25% of people in the US say they would not use such a vaccine even if available.

As far as the extent of existing herd immunity, the truth is we don't know how extensive it is for the reason stated in the interview. That is 80% of infections are asymptomatic so how do you know you have tested the people who actually have immunity? Indeed, how certain are you in the anti-body testing. Then there is the question of cell rather than anti-body immunity.

Even the anti-body testing in the UK suggests that in some groups the actual immunity is as much as 15%, and so on. But, the simple answer is look at the current data in relation to Sweden. The number of deaths has virtually fallen to zero. There is no indication, unlike UK, Spain, Germany, France, New Zealand etc. that locked down, that there is likely to be any second wave, or upsurge in deaths, because nothing in Sweden is going to change. That in itself is the best evidence that the virus is finding it difficult to spread amongst vulnerable hosts in Sweden, unlike the situation in the other mentioned countries.

Anonymous said...

we should nt have locked down. it was a massive mistake. If we could go back in time the only lockdowns that would have made sense would have involved keeping hospital admissions out of old peoples homes. and restricting air travel. but everything else has been redicoulous and has actually cost lives.

BCFG said...

“While BCFG is clearly trolling you”

Funny how Carty doesn’t say this when Boffy speaks of the 5 million business owners and their families and lumps in together anyone, right or left, who was against the EU.

If Boffy can lump people together, willy-nilly, then I sure as hell can do the same to him.

If the Brexit left are to be lumped in with the 5 million business owners and their families then let anti lockdown Boffy be lumped in with those same 5 million business owners and their families, Trump, the alt right conspiracy idiots and the Brexiters, the Weatherspoon and Pimlico bosses and all tyhe other anti lockdown vested interests.

That isn’t trolling, it is illuminating.

Also funny how Carty doesn’t call Boffy trolling when he claims I am a right wing fanatic called Sentinel, who I believe to be Boffy’s sock puppet.

I also reckon the utterly idiotic comments of anonymous above have all the idiotic traits of dumb fuck Boffy.