I feel like... if we didn't already have a bunch of people saying "things were better ten years ago" with an implied "[when i was ten years younger]" we probably wouldn't be hunting for explanations as to why this was the case with all these charts
and if we just, like, looked at these charts without that context, we probably wouldn't draw the conclusion that things are getting noticeably worse at an abnormal rate
I have a sneaking suspicion that what's going on is ordinary Great Stagnation stuff. But when articles get written about France or Uganda or America declining economically, it feels like dry economic debate, whereas when articles get written about the UK declining economically, the articles become aligned along political lines, and the headline must either specifically blame Brexit, or specifically exonerate Brexit, and so it feels like a bigger question than it actually is. Or at least, a bigger question than other similar questions we might ask of other countries and other periods of time.
Essentially I think there's something related to privileging the hypothesis going on here.
I don't have a very high confidence on this, it's more of a nagging feeling
edit: also, the image displays an american flag burning, whereas the british flag is less on fire. i am upset about this.
> Britain seems to handled inflation reduction very badly.
Keep in mind that they have over 2.5 trillion reasons to do so. With a national debt over 100% of GDP ( https://en.wikipedia.org/wiki/United_Kingdom_national_debt ) policymakers have a strong incentive to screw citizens over by pushing for high-inflation policies.
The selected comments were a decent overview from a statistical perspective, but they all missed a key feature: the tapering off of North Sea energy - both oil and natural gas.
A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
Note how trade balance was fairly even until 1995 when it fell off a cliff.
The UK's need to import food and pretty much everything, was offset by energy exports until the North Sea fields started tapering off. Unlike all the big EU nations, the UK imports literally half of its food - 45%+ vs. high single digits to teens for France, Germany, Netherlands etc.
Food is not something you can work around; but high percentages of food imports are ok if you have energy exports to offset but the North Sea declines flipped the equation - the UK now imports energy in the teens percentage on top of the 45%+ food imports.
Net net: the UK is f'd - especially since they are so keen to piss off the largest nearby source of cheap energy (Russia) who also incidentally is the largest wheat and fertilizer exporter in the world.
I wonder how much of it the discussion is that people are actually paying attention to our economics more after the Liz Truss fiasco, and noticing a lot of Brits are very unhappy when it comes yo the economy and their incomes (eg huge strikes in healthcare and other sectors).
Potentially partly fueled by long periods of austerity and the feeling that it didn't actually fix anything, add on COVID and high inflation and people finally want stuff back but huge rise in debt-to-GDP and Liz Truss mean it's very difficult for the government to fix anything?
The only data point I have on this topic is that engineers in the UK make a lot less than equivalent engineers in the US. To the extent that the US economic and productivity growth is in some way attributable to the tech sector, that matters. Fewer talented people would be attracted to work in the technology sector, fewer smart people from around the former Empire would be tempted to move to the UK to work in technology, and the smartest folks in the UK will be tempted to move to the US. (I'm assuming that a UK > US immigration path is relatively easy, and I definitely meet a lot of people from the UK in Silicon Valley.)
I don't know if this is material or anecdotal, though.
Salaries may be lower in UK but total comp is about the same or even higher in the UK when you factor in the cost of taxes and regulations born by the employer.
Your graphs don't look particularly good for Britain, but they also don't look too good for France, Italy etc.
England is a European country, and Europe as a whole is just not doing so hot. Does there have to be a UK specific explanation? If you're Leave, then Brexit should have rescued UK from EU stagnation, and if you're Remain then the EU is doing well and UK should be trying to match it. I don't think either are true.
Curious how few comments mention that UK embarked on record levels of immigration in early 2000s, with predictable consequences for productivity and wages after just a few years.
I feel like the single most common thing I hear every time someone is describing their geographic area experiencing economic malaise is that housing is too expensive. There are probably a lot of other factors for making objective determinations about an economy, but from a purely feels based framework, it's the single most consistent complaint of the modern era. And I guess it might actually be exploding the Chinese economy as I type this, so that's exciting.
The U.S. also doesn't look great on GDP per capita growth post GFC compared to pre GFC trend. UK still a bit worse, but most of Europe is. It's 50% that the entire developed world would look bad in the first chart, then another 50% made up of a little currency decline, a little extra economic stagnation (more likely due to aging population than government policy), and a little bit of disruption from Brexit and COVID and slightly worse monetary/fiscal policy than other countries.
I think total R&D spending is more relevant than government R&D spending, even when the question is about austerity, because in countries like the US and UK where most R&D is privately-funded, government policy has significant impacts on private funding.
(Loose monetary policy increases all kinds of investment; government spending on high-tech products and services drives R&D in the affected industries; corporate tax breaks can directly incentivize some kinds of R&D investment, and consumer tax breaks can provide indirect incentives, as in e.g. residential solar and EV subsidies.)
Now, the real problem with the R&D spending hypothesis is that if you go to the OECD page and look at the trends in spending as a percentage of GDP, you see that the UK's rate of investment jumps *up* very dramatically in 2013, nearly doubling in the period from 2013 to 2020. This does not fit with a story of recent systematic disinvestment as a result of austerity.
Here's a nice, simple explanation*: "resource curse", where our 'resource' is not oil or coal (any more), but cheap imported labour (both skilled and unskilled). This would explain the worst-in-class productivity growth and the terrible wage growth. It's also had a number of unfortunate side-effects (housing & infrastructure pressure, education & cultural challenges), which could have been mitigated through good governance but were not (for a number of different political reasons, plus the permanent omnishambles that is the Civil Service).
This resouce, the result first of the Empire and then of EU membership, allowed us to live well, 'beyond our means', for far longer than our policies and governance would have naturally allowed. Depending on your preferred metaphor, Brexit has either ripped off the bandaid and and made things hurt a lot all at once (but now we can see how big the cut beneath is and do something about it...), or kicked out the load-bearing wall that is holding up the whole house.
* Because this is nice and simple I mistrust it, though it feels true and matches my lived experience in the UK.
The government simply doesn’t feel a need to prioritise productivity and nothing seems to convince them to make it a priority. The “northern powerhouse” is basically a comedy meme at this point. That’s basically what’s going to happen when the government is defined by the unproductive elements of the national economy: Landlords, Pensioners, SpAds, and Yellow Journalists.
As a Brit, it is clearly housing to a very large extent, in London and the South East at least. Particularly the "Green belt", which is a remarkably effective way of blocking development in exactly the place it's most needed (surrounding productive cities). Although planning in general is pretty miserable in the UK: lots of uncertainty around the eventual process, and plenty of opportunities for people to veto or appeal.
It's quite different outside London, where incomes and GDP are much lower. There's a convincing argument that lack of transport infrastructure (either public transport or road networks) means UK non-London cities are in effect much smaller than they appear, so they lack the expected agglomeration benefits, see https://www.tomforth.co.uk/birminghamisasmallcity/.
I don't have a good answer, but it seems to me that most of the data shows the slowdown starting around 2008, which makes Brexit/other recent government decisions unlikely to be primary causes.
I wrote the following back in 2019, and then emigrated in 2022 (having been delayed from doing so by various governments’ overreaction to covid). I paid over 40% tax on my salary in my final year in London (that’s over 40% overall, the highest marginal rate was of course 62% between £100k-£125k). I now pay well below 20%, and enjoy an exponentially better lifestyle. Many of my former colleagues have followed me, and others are planning to do so. I wrote the following not in anger, but in sorrow, about what I perceive to be the UK’s inevitable, and almost inevitably cataclysmic decline:
For over a decade, most of the population have been parasitic on other people's hard work (there's no such thing as 'government money', only other people's money)…”
I recommend caution when interpreting figures for wages/earnings.
Say someone is working as an employee at Big Business Incorporated with a salary of £60k/yr. They quit, create their own company with themself as the sole owner and employee, and sell their services to Big Business Incorporated for £60k/yr, paid to their company. Their company then pays them a £12k/yr salary (the maximum tax-free amount) as an employee, and the remainder to them in dividends, in their capacity as the owner of the company.
This is a good deal for Big Business Incorporated: they get the same work for the same pay, without providing any of the ancillary benefits (statutory leave, notice periods, etc.) that an employee gets. It's a good deal for the worker, too: their income will be subject to corporate tax and dividend tax, which are less than the income tax they were paying previously. It's a bad deal for HMRC (the tax agency), who lose out on some tax revenue. But, in the statistics you're looking at, I think this would show up as a drop in wages/earnings, from £60k/yr to £12k/yr for this individual.
There's a continual struggle between HMRC and industry to determine to what extent this is permissible. If you're working for three or four companies at a time, never for more than a couple of months, then you're certainly a contractor, and are permitted to declare your earnings this way. If you're working for five years at the same desk, doing the same job as when you were a regular employee, then you're probably going to get in trouble. In between there's a lot of grey area, and HMRC struggles to define clear rules and prove in court when they've been breached.
My impression, from friends in the industry, is that there was a strong trend toward incorporating and declaring oneself a contractor for tax purposes through the 2010s in the IT sector, and that there's been a crackdown in the last couple of years. This sector might be enough to make a significant difference in the earnings plots you've shown, or the same could apply to other sectors. If I'm correct about this, then future figures for wages/earnings should increase relative to GDP per capita (as a consequence of the crackdown): their decrease relative to GDP per capita through the 2010s will have been an artefact from an accounting trick.
I don’t have any great insight as to causes, but I’m friends with the head book/paper conservator at Cambridge University. Cambridge is a great place to live, with expected very expensive housing and other costs. He was hiring a new conservator—a highly skilled, specialized, valuable job. The starting pay was 25k GBP. I was absolutely gobsmacked. I have no idea how anyone can live on that in Cambridge.
Further to my comment below, I should perhaps have cited the conclusion not the opening:
“The UK's Overton window was set decades ago by well-intentioned post-WWII socialists who implemented superfically attractive schemes of healthcare and benefits which were sadly both economically illiterate, and - in the long term - deeply counterproductive. They effectively threw evolution into reverse. The UK's fate was determined once more than 50% of the electorate became net “takers”. This outcome was inevitable given policies implemented in the post-WWII years. The UK has been on an accelerating downward spiral of higher taxes and worse productivity ever since. Now that parasitic voters are the majority, they will – quite rationally – insist on voting themselves increasing swathes of other people’s hard-earned money. The only rational choice for the latter - if they can - is to get out:
• The 46% of productive people in the UK who put in more than they take out are shackled to a corpse. They cannot change the reality of UK productivity and economic performance, and the policies which in a democracy must flow from that.
• Those who do not want to suffer ever-higher taxes and wealth confiscation should emigrate. Between Dubai, Hong Kong, Cayman, BVI, Singapore and other locations, there is no requirement to ever pay more than 17% tax ever again (if that).
• The UK is long overdue a vast correction to reduce the standard of living to a sustainable level. The process to get there will take decades and be brutal.
• Project Fear will be wishful thinking. The UK took a wrong turn by embracing socialism in 1948. Its subsequent economic history has been one of continuous decline, puntuated by temporary and non-replicable periods of superficial adequacy (joining the EU, selling off utilities, North Sea oil boom, selling council houses, printing money, suppressing interest rates, increasing borrowing, increasing taxes). The barrel is now empty. Those who can should get out.”
I lived in the U.K. from 2006-2012. You could see the beginnings of the malaise then. Until 2008 the post Blair boom was clearly ongoing, and it was a happy place in general. I feel Brexit later on caused a rift in the psyche of the country; if you are going to change your society via referendum, better make sure the winning side wins overwhelmingly. (There’s a similar argument that Scottish independence should need far more than 51% to succeed).
And wages? I was invited back to London recently on the same nominal contractor wages I was earning in 2012. That’s a real reduction of 30% ( at a quick estimate).
Most other people I know haven’t had raises for years, and are far below inflation these last two years.
Meanwhile the U.K. is also buffeted by the culture wars, and the whole thing is amplified post Brexit because the (young) left has not forgiven the (old) right for what they think is a betrayal of their future livelihoods.
And inflation, tamed in the US, is still ongoing in the U.K. (and Europe in general). Two years of 8%+ inflation would be hard to recover from, particularly from what we have seen in the graphs above regarding household income. Three would be a disaster. And there’s the general feeling of a decline in the public space as well.
Still the British are an industrious people and can come out of this in time. It kinda looked like wages were growing pre covid.
Two key drivers of “UK economic malaise” discourse:
1– Recently, the UK has had significantly higher inflation than the US and the Eurozone without as much success at returning to pre-COVID trend. Price stability affects perceptions of economic performance, and most observers expect that the UK’s particularly high inflation rates will require particularly harsh corrective measures (starting from a weaker economic baseline than the US did when its year on year CPI was similar).
2– The UK had above-European-average growth rates during the 1980s and 1990s. Reverting to France-like performance felt like a comedown, particularly because Britons don’t enjoy the sort of labor market protections, free university educations, long vacations, and short workweeks that their counterparts across the Channel have probably traded some of their growth potential for. Continental Europe-like economic stagnation without the various compensations that help the continental Europeans enjoy a higher quality of life per PPP-dollar of per capita income than say, Americans do particularly sucks.
One piece of anecdata: British academics are particularly poorly-paid. This is less of an issue in other fields, but in the field in which I am a professor (CS), the only financially sound reason to take a UK academic job over a comparable US one is family money. I have a longstanding love of the UK and would chose it over the US in a heartbeat, for largely cultural reasons, but I could not justify the approximately 2/3rds pay cut to my wife, in the face of much more expensive housing.
This has had a profound and long-lasting effects for the country's tech sector. The only reason the UK has any presence at all in AI/ML is because of DeepMind, which happened in London because Demis Hassabis was a postdoc at Gatsby and liked it, and has family money. That's not to say there aren't plenty of brilliant British AI/ML academics; it's just that, DeepMind and its ripple effects aside, most chose comfortable middle-class lives elsewhere, and have been doing so for decades.
For calibration: a strong British university at which I would love to work recently advertised a Lectureship (equivalent to an Assistant Professorship) at £38k per year. The Assistant Professorship I landed in the US started at $120k a year, for nine months. You can add the extra 3 months summer funding if you get some grants (an option not available in the UK), which isn't hard in this environment, so effectively $160k.
These are jobs that are supposed to attract only the very top tier of researchers with PhDs, and require huge amounts of training. I only managed to land mine in my mid-30s. £38k. Extrapolate that to the rest of STEM and run that model forward for decades and see what you get.
From my perspective on the ground the decline certainly feels very real, in a way that's not reflected in the GDP stats. Even the median income and wages figures only suggest a stagnation since 2008 at worst, whereas if you asked the median person I'm sure they'd say the standard of living had worsened, even prior to the recent inflation.
I'd say the most obvious cause would be housing. Although this FT article says the housing crisis in the UK is fairly typical for an Anglophone country, and less severe than in non-English-speaking developed countries (maybe the lesson to take away is we should switch to another language).
The other Anglophone countries, the US in particular, don't seem to be in as dire a predicament as the UK is, whereas some of the continental European countries are arguably in a more similar position. Which makes me doubt housing is the crucial factor, bad as it is. This could be the reason the GDP stats are still relatively strong though, since an inflated housing market will boost those.
It's a bit of an out-of-left-field explanation, but for my entry in the book review contest I argued that Britain has an extreme case of what David Graeber termed Bullshit Jobs. Large sections of the economy have come serve dubious social purposes in the last decades, i.e they're not obviously welfare improving.
If the UK really is performing unusually poorly economically in comparison to other developed countries, I'd argue that's the structural factor that's most unusual in the British economy.
To focus in on one part of the discussion - I think the wages/real wages distinction is worth reflecting on.
There are three different wage values that a person might be interested in:
1. nominal wages (which you show), ie the actual figure printed on people's paychecks. It's meaningless.
2. real wages in domestic currency (which you show), ie the figure on people's paychecks deflated by domestic inflation.
3. real wages in dollars, ie the figure on people's paychecks converted to dollars by the contemporary exchange rate.
I think - and I might be misreading - that you posted charts 1 & 2 but, going by your reference to the exchange rate, interpreted them as charts 1 & 3.
I might be wrong trying to correct you here though, because the basket of goods used to deflate (2) is at least partially imports, and so a drop in the pound around this time should indeed make the basket more expensive and so it's kind of a moot point to make.
But that leads to another, fuzzier point. The devaluation of the pound happened basically all in one go in 2008. It's been stable at around the same level since then. And so if you want to use the pound's devaluation to explain stagnant real wages, you have to claim that the effect of the devaluation has leaked into the price of the basket of domestic goods over 15 years.
Which feels like a very long characteristic time for such an effect.
> I’d also like to understand more about how public R&D spending works. Is the government just funding basic research? Or are they helping companies make products? If the basic research, why are the benefits so limited to the individual country that the research is being done in?
I think I can try giving a bit of insight on this, though anecdotal. I worked in a public British R&D institution for years and the story was, roughly:
1) salaries were awfully low compared to the industry, we're talking below £40k for experienced, senior researchers who could easily go out and earn £60k-£70k elsewhere. Literally only held by their passion for the work, and hiring was super hard. This also because the government explicitly blocked the increase in salaries for years (as it did for all public workers, because austerity)
2) funding was given through grant programs that the workers themselves had to continuously apply to to find money for their own salary - not as bad as it seems like it is in University as some programs were relatively reliable to be renewed, but still, more productivity down the drain (writing often inane grant applications that didn't say much and would be thrown in the almost stochastic and often politics-driven engine of bureaucratic committees)
3) but most importantly, lots of funding was essentially a roundabout gift to private companies. Programs had a much better chance of going through if there was some kind of partnership with a private company involved; then the public money pays for e.g. a few PhD students or infrastructure like supercomputers which is then preferentially used by the companies, with the public researchers mainly getting the crumbs that fall off the table, and often they'd then get to keep any useful results under NDA and patent them, whereas the scientists only published what results they were allowed to in papers and that was it. Industry would always get the red carpet treatment over anyone else. This resulted in some rather humiliating situations - in one my whole group was literally kicked out of a building at short notice and forced to scramble to find a different office to make room for companies that were establishing a presence on campus.
So I think it's understandable how this stuff doesn't work much: poor retention, worse hiring, and what is done often ends up benefiting directly only a handful of companies who may not even exploit its full potential, as the partnerships are designed specifically to boost directly British industry.
Part of the problem with Britain today (and perhaps the past) is the elite dislike of practical subjects. Even mathematics (not practical in its pure form) comes in for attack from British “thought leaders”
This is from Simon Jenkins, bemoaning the “Tory driven cult of mathematics”. Every sentence is bunk, so I will leave to the reader to debunk it in his own way - watch in awe as a graduate of theology wonders about the practicality of math.
I suspect Jenkins hates mathematics because he wasn’t very good at it, but he comes from an elite class (hence the guardian gig) and it pains him that plebs who may not have even had private schooling, or gone to Oxford, might have some ability here that he doesn’t.
But this couldn’t be right, could it? How could the plebs be smarter than Jenkins, some of these blighters went to red brick universities. Shudder.
This isn’t unique to Jenkins, practical subjects are generally frowned upon even in the elite universities. The future politicians are doing classics and philosophy. And mathematics isn’t the under graduate course for the future ruling class either.
It’s been like this for decades, perhaps for ever, but the chickens are perhaps coming home to roost.
Plus inflation is also projected to drop significantly.
I think people are misjudging the raw numbers - EU will never have the rapid economic boom enjoyed by the asian countries - the standard of living within the EU is already pretty high, among the top few in the world.
EU was never going to become some sort-of economic "superpower" - indeed, the reality is that no serious politician lobbies for that. The paramount priority is to reduce disruptions to citizens' quality of life and slowly improve it to maximize votes/support.
Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
The comments from AH about an economy overly dependent on housing, low skilled immigration and selling degrees to international students all apply to the Australian economy too
The stuff about housing and a rentier economy sounds like Henry George's thesis on what happens to otherwise successful economies in the long run.
If you ask the Georgists, they'll tell you this is what it looks like to be moving toward the inevitable equilibrium state of housing markets given long enough without war or mass destruction of other kinds. A state in which land is owned by the few and inherited by those lucky to be born to them, who extract rents from the many.
A state staved off only temporarily by developments such as the automobile or mass transit which made land further from city centres viable to live in. Resetting things somewhat and delaying the eventual ossification of land ownership to a later date.
Georgism used to be incredibly popular. I wonder if we'll see a resurgence.
I was toying with that idea of energy consumption as an index. Intuitively, it seems like a good idea—more energy spent means more production, right? It’s decoupled from currency. We’d expect something like the British shift into housing, or any unproductive sector, to go with a decrease in energy.
Unfortunately, I couldn’t find data for UK energy. Not [past 2014](https://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC?locations=GB), at least. And there are some other problems with the metric, especially regarding technology and trade, which probably have more effect on the curve.
UK suffers from a lot of the same problems as the rest of Europe, except unlike France/Germany, it's economy is less complementary to the US (finance/tech which US does better, rather than luxury goods or heavy industry)
To answer your question about German economy post WW2: immediately afterward it was very bad. So bad. Barter system, food rations, bad. Lack of workers (dead soldiers) was a big reason.
Some highlights: replace the old bad currency with a new one, strong central bank, strong regulations, strong social net, large tax cuts, remove price controls.
Thatcher sold off huge amounts of public housing under the Right-To-Buy scheme, to the people living in them, at massive discounts. This was very popular, since it was basically giving away cheap houses, and bought Thatcher a lot of the political capital she needed to enact the rest of her agenda. In fact, it converted a lot of people into Conservative voters, since people who own property have a reason to protect that property.
However, it meant that the government no longer owned any public houses, and Thatcher certainly did not intend to build any more. It was a one-time-only deal, made for short-term political gain, and a terrible investment in Britain's future. The government had essentially sold off a lot of valuable property at below-market prices in order to create a bloc of lifelong Tory voters, permanently shifting Britain's politics in a Conservative direction while also leaving it without the capital it needed to invest in future generations of Britons. Hence the age gap in British voting patterns now.
The whole 80s neoliberal revolution was like this. The reason America's national debt is so high now is because the Reagan administration completely abandoned fiscal discipline, tripling federal debt in order to slash taxes without having to totally dismantle social services. Basically, the government took out a huge loan in order to buy long-term political support from what would become the boomer generation, guaranteeing them constantly increasing property values for the rest of their lives. This is coming apart at the seams now because the boomers - while remaining completely bought in to 80s conservatism - are getting old now, and there's not enough money left to do it again.
The old British people who are now fucking up the country were deliberately shaped into a constituency of Tory voters by Thatcher in the 80s - not just through Right-To-Buy, but through a whole range of other means. They were guaranteed all manner of special privileges - notably, constantly increasing house prices - in exchange for their complicity in dismantling the social-democratic institutions of the post-war period. These special privileges were expensive and came at the cost of long-term investments in Britain's future. Hence, the state of the country now.
These analyses are way, way too macro to capture the malaise here on the ground. I'm a Canadian immigrant to the UK, and the *feel* of the two places is radically different. There are a lot of things I like about the UK, but it does feel like the country is going to the dogs.
- Teachers, doctors, nurses, have all had real terms pay cuts of 20-30% since the financial crisis - the educated backbone of the society can't afford a decent life on two full-time salaries. Inflation just has not been matched by salary increases (junior doctor table here: https://www.bma.org.uk/media/6134/bma-ia-pay-restoration-methodology-13-september-2022.pdf)
My wife is a teacher, is literally one of the best teachers in the UK (they're formally ranked), is making as much as a teacher can make (there are various top-ups for extra responsibilities, excellence in teaching, etc), and if we were both on her salary we couldn't afford to buy a modest terraced house and send our daughter to nursery.
- Speaking of that, the UK has some of the highest childcare costs in the world: Many people I know, who are passionate about their jobs, literally can't afford children and to keep working. These are university-educated professionals doing practical work (engineering, medicine, etc)!
- This sense of malaise goes down to the individual level: A record number of people are recorded as being out of the labour force due to long-term illness. Some of that is related to the wait list point above, but much is fuzzier, even though formal 'unemployment' is quite low. https://www.independent.co.uk/business/unemployment-statistics-sickness-ons-b2339882.html
Whilst long-term sickness is biggest amongst the older, school refusers have shot up, to now c.20% (!) of students missing a large number of classes (>10%) without good reason
-UK companies don't really believe in the future. I work for a UK-based multinational bank, and despite a few flashy programmes, we're running on ancient computers and they constantly skimp on training - it's the second-worst in the G7, after Japan (which doesn't even have very many young people to train, and is notoriously averse to digital solutions)
- This is harder to capture in macro data, but the *quality* of many things are shockingly bad in the UK. Houses are not only insanely expensive versus salaries (>10x in London), but just bad quality - drafty, moldy, shoddily built, and small. Cars are mostly still manual. Doors use old bolt locks. Street cleaners are manually pushing things around with a broom. A stunningly low proportion of homes have dishwashers, or washer/dryers.
- There so much litter, in a way I haven't seen in other developed countries. People just throw their trash on the floor. It was already surprisingly bad when I arrived in 2013, and has gotten materially worse since.
I know people have long explanations for everything, but my sense is simply that it is too damn hard to build property.
This (i) makes office space expensive so hurts employers, and (ii) makes life very very very expensive for everyone who rents or tries to buy housing.
I work in the same industry as my dad, and I earn roughly what he earned at my stage in life approximately 30 years later. Meanwhile, I paid 3x for my first house what he paid for his equivalently sized house in the same area.
Property prices have squeezed money out of real incomes, and the government have responded by raising taxes to try to weakly subsidise housing (disincentivising work and businesses) without addressing the root of the problem, the planning system.
We also waste a disgusting amount of money on a totally dysfunctional health system, that is beyond a joke and is unfit for purpose. At some point, people will wake up and stop worshipping at the altar of the NHS, realise it is an idiotic system that does not incentivise efficiency or outcomes, and we can release massive amounts of money into a productive healthcare system.
So, planning restrictions, and the NHS. My two cents.
“Most people's savings are locked in housing, a non-productive sector. “
This is wrong on two counts. No money is “locked” in housing. Every purchase price is a sales price. At a national level, the UK cannot invest more in housing except by constructing more physical housing. I don’t think they’ve done too much of that. They’ve done too little.
Is housing not productive? What if I told you it was a factory working 24 hours a day, 7 days a week to keep you warm and dry?
We have several citations of "austerity" in the post and the comments -- have we established that austerity actually *happened*? When I look at UK government spending (https://www.gov.uk/government/statistics/public-spending-statistics-release-july-2023/public-spending-statistics-july-2023), the only decrease I can see on Chart 1 is from the peak of pandemic spending, and that decrease is still to a much higher spending level than pre-pandemic. Austerity in government spending seems to mean that spending increases less quickly than someone wanted, not that government actually spends less.
I have heard pundits for many countries refer to austerity, but that austerity (almost?) never refers to lower government spending. At most, it refers to slowing the rate of increased government spending.
Either way, is there a reason we would expect increased government spending to be a driving factor in economic growth? Government money comes from somewhere (taxes), and GDP=C+I+G+(X-M). Increasing G usually comes from taking money away from I. Unless we have reason to believe that government spending creates more long run growth than investment, we should probably expect increased spending to be negatively correlated with growth. Maybe there are countries where government investment is especially important, but do we have evidence for that in the UK?
Most discussions of austerity are in terms of reduced welfare spending and social programs. That is redistribution of wealth so it can be used for current consumption, not investment in future growth. You can argue that redistribution increases aggregate utility in the current year, but that seems at best neutral for future growth if the redistribution is shifting C around between citizens and negative for future growth if it converts I to C.
You have to take the charts as you find them, I guess, but many financial charts are intuitively clearer if the vertical scale is log rather than linear.
The UK speaks English, so it’s navel-gazing is more accessible; beyond that, most of this is the general European stagnation.
The caveats to this are that the UK is a bit (not massively) more unequal than other developed European countries, and has much looser employment laws; as such, it has less unemployment (particularly youth unemployment) but more low-wage workers. It’s also got lower public investment, and is inexplicably in love with a worst-of-both worlds model of semi-privatisation which tends to reduce private investment in infrastructure. This isn’t a huge real effect, but crucially it makes everything look crap because no-ones incentivised “make it look nice” or improve user experience. The result is everything seeming more late-Soviet than it is.
Finally, the universal decline in politics manifests itself in the UK as two groups of underwhelming relics whom no-one expects to meaningfully change anything. This probably isn’t a fail-state compared to everywhere else, but adds to the aesthetic aura of doom.
One thing that has not been mentioned here at all is income inequality, where the UK takes second place among developed countries, just behind the US. I think that a generally slower economic growth that is also absorbed by the top 1% to a greater degree can feel like economic decline for most of a countries inhabitants.
I couldn't find any nice graphs comparing income inequality over the past years of different EU countries, so I'm not sure if there is something unique going on in the UK.
Two remarks, unrelated to each other but related to the post:-
1. The first four paragraphs of AH's comment (rentier/monopolistic economy, non-productive investment, dependence on cheap immigrant labour, property bubble system trap) exactly fit New Zealand. And yet the charts seem to pick out NZ as doing well,* while the UK is doing badly.
The difference between the UK and NZ is that in 2008 NZ got a Free Trade Agreement with a huge new economy, China, while over the period in question the UK slowly decided to erect trade barriers against its largest markets and suppliers.
* It doesn't feel like that, to someone in the lower half of the income range. My grocery bills have doubled since pre-Covid days, and I no longer buy expensive brands or foods (meat). Income inequality, or at least well-being inequality, seems to be skyrocketing. My housing and other core costs have increased too; the sole exception being medical prescription costs.
2. Just like the Kaya Identity for global CO2 emissions, there is a GDP identity:-
GDP per year = number of people working, times hours worked per person per year, times number of value-producing operations per hour, times value per value-producing action. Employment, hours, work intensity, and "productivity".
(GDP/year is then spread over all people, including children, the aged, and others not in work, to arrive at "GDP per capita".)
All of these components need to be examined. (I'm not doing any investigation here; I'm just writing some introductory notes.)
For employment, looking at Unemployment is highly** misleading; a better indication of the health of employment is "number of prime age (25-54) males in employment". (It's still women who get taken out of the work force by child-bearing and -raising, and there seem to be cyclical (cultural?) factors at work there. So to focus on employment robustness, males are an easier indicator to use.)
In Britain's case, "the 25-54 males in employment" chart on FRED dropped two full percentage points at the start of Covid, it and has only recovered one of them. Everything else being equal, there's half the explanation.
FRED has discontinued its chart of average annual hours worked per employee, but it seems likely that the downward trend has continued over the last decade.
Worker utilisation, or work intensity, numbers are the hardest to come by, but they are critically important. Here's an explanation of what I'm talking about: Say a Costa barista was making 100 coffees in an eight hour shift, but now makes only 80 on average. Or a hairdresser was averaging ten haircuts, but now does nine. They're working the same number of hours, and they're employed, but output is lower, because demand has decreased. Likewise, if a salesperson for Acme Widgets used to write five sales-related emails per hour, but now writes only four, her work intensity has reduced. (Thanks, IT! The new cloud-based AI system is sooo good, really. Even if everything now takes three times as long to do, and re-do, and re-do...)
The reasons why this happens at an aggregate level can be manifold and complex. Enjoy your dive into this rabbit hole. You'll be groping in the dark, mostly; economists are astoundingly lazy, and won't work on anything if the data are hard to come by, even if it's important. Drunk, lost keys, streetlight.
Now, "value per value-producing action". For a barista or hairdresser this is easy: the average sale price of coffees or haircuts sold. Perhaps customers are going for cheaper options. For a security guard? Hmm, that's trickier.
At an aggregate level changes in this figure reflect changes in industrial composition, the relative size of industries. If lots of people in the UK have moved from (say) high-value industrial machinery manufacture to (say) low-value Amazon order fulfilment, they may be still employed, and working the same hours, and working at the same intensity (harder, even), but producing less value than they were before.
This is another rabbit-hole in which to burrow. Enjoy!
** I originally wrote "quite misleading", but this is an American site, and "quite" is likely to be misunderstood.
What, exactly, does GDP tell you? If I manage to make a car for half the cost that it went for previously, that's an advance. Does it show up in GDP if I don't make more than twice as many cars at the new price? If people buy the same number of cars at a lower price and then use their excess cash to purchase other goods is that neutral? Or a gain in GDP?
GDP, as I understand it, gives zero or negative value to technological improvements. That seems a noteworthy blindspot.
I recognize that adding a person to the population tends to increase GDP, and countries with faster growing populations will show increased GDP growth, yes? How does population growth tend to impact GDP per capita, though? There was a fear that some developing countries would have such explosive population growth that they couldn't develop economically. That sounds like a scenario where GDP growth could hide some deeper problem, right?
It should be noted that income inequality is higher in Britain than in France, so when they have similar GDP per capita, your median Pierre is better off than your average Peter.
AH, whose comment you quoted, gave a good summary of the property-related reasons for longer term decline, AIUT.
But in recent years, say the last thirty, another factor has also come to the fore: Successive governments' ever more determined and desperate efforts to "game" the headline GDP figure by increasing public spending, which is included in this pernicious and outdated measure of national prosperity.
The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS (National Health Service), huge rates of immigration both legal and illegal (which somehow increases GDP, although I'm not entirely sure how), and various massively expensive and near useless white elephant projects such as HS2 (a Victorian-style rail project that somehow strayed into the 21st century), and of course above all a voracious insatiable appetite for the money to fund it all this public spending. In relation to the latter, most of our large companies and assets have been sold to foreign buyers, and taxes are currently at record levels. So it seems like this GDP Ponzi scheme is fast approaching a denouement.
It's a wonder that institutional investors don't twig that overall GDP (and not even GDP per head) is a rotten measure of prosperity. I suppose the obvious answer is that they know this all too well, but don't want to rock the boat and risk reducing the value of their investments.
Brexit did have a short-term small adverse economic effect, which even the most ardent Brexiters realised at the time of the vote was inevitable. But some politicians and most of the "high-brow" Remainer-biased media (in the UK and the US) have greatly exaggerated the effect and continue, ever more unconvincingly, pointing at Brexit as the reason for all our woes. So I would treat that with a pinch of salt. The big picture is that the UK is really no worse off economically than most other EU countries. We have been agreeing trade deals far and wide ever since we left the EU, which would have been impossible had we still been shackled to it!
What you also have to factor in when talking about decline is stuff that doesn't show up in GDP figures. The NHS is in a horrid state - to get seen by a doctor, you have to phone the GP surgery on the day you want an appointment, usually when it opens around 8:30am. Everyone is doing this so you are put on hold for up to an hour. Then you have to explain your complaint to whoever answers the phone, and it gets triaged by a nurse - then if you are lucky you get an appointment or more likely a call back from the nurse. This system seems to be an informal way of rationing healthcare so only people who don't have to go to work or drop kids off at school can use it (i.e. mostly old people). Transport infrastructure is also falling apart. The government can't seem to get on top of potholes and there are always problems with the trains, moreso it seems than a decade ago.
Most British people don't look at GDP figures or bother much about how other countries are doing, but still complain of a sense of decline. Its also worth noting that national figures don't show the regional picture - most of the industries doing well are situated in a triangle between London, Oxford and Cambridge. Outside of that the economic situation is comparable to Eastern Europe.
Brexit is too recent to take the blame for this IMHO - long term demographic trends are more likely. We are an aging society that has chosen to pay for healthcare in a way that can get really expensive. Elderly voters have used their electoral power to secure continued free access to healthcare (albeit with rationing e.g. above) as well as absurdly inflated state pensions via the triple lock. The cost of keeping the postwar generation happy drives taxes higher and squeezes out investment.
A lot of comments have highlighted that issues around housing are not unique to the UK, with all of the anglosphere suffering from awful planning and huge housing costs. However, I think there are a few particular characteristics of the UK that make this more important.
First, the UK is simply much more densely populated than the US, Canada, Australia or NZ. Housing here has always been a lot smaller than similar countries (European housing as well) which will surely contribute to a poorer feeling.
Similarly, UK housing stock is very old, with a lot of pre-WW2 housing still in use. This lowers the quality of British housing relative to other nations.
So you've got older, smaller houses than elsewhere with less land. I don't know if there's any data on this, but I would also speculate that the relative shortage of land meant Britain was starting from a higher point with respect to housing costs, but can't be sure on this.
But it's not just a shortage of land - it's a shortage of productive land. The town and country planning act of 1948 has already been mentioned in an earlier comment as being particularly destructive. The creation of "the green belt" surrounding all of Britain's major cities essentially calcified them permanently in their 1950s states, preventing any housing from being located in the most productive areas around cities. I think it would be interesting to look at median housing costs for e.g. the 5 biggest metro areas in each nation rather than the whole nation, or to look at % of total population living in big cities for different countries. I suspect the UK would come out very poorly. After all, anyone can name several major metro areas for the US, Aus, or Canada, but the UK just has London - and even that city is far smaller than it should be.
Inflation is high because the UK imports most of its food. Groceries like green beans routinely come from Kenya.
As for the structure of the economy, the UK’s remarkable political stability (plenty of strife and civil wars but no successful revolution) means much ownership of land is still concentrated in the feudal aristocracy, not least the royal family. When combined with a nominally democratic political system that protects their interests (leasehold never abolished, no property tax other than stamp duty on property sales the feudal never engage in), it’s no surprise so much of the economy centers on rent-seeking, often literally.
While by the end of WW2 lots of German men had died, the industrial output was falling, and the large cities were in ruins, the industrial *capacity* has not been significantly reduced because machines etc. could and have been sheltered from Allied bombardment - in fact, Germany's industrial capacity has been higher at the end of WW2 than at its beginning. Manpower and access to resources were the limiting economic factors in the end for Germany. Once these impediments had been cleared through political and financial support (Marshall Plan instead of Morgenthau Plan), and workers brought in from e.g. Spain, Italy, Turkey, Germany could quickly pick up the economic pace. Germany had the dubious luck of being *the* frontline in the Cold War and thus the USA saw fit to keep them as an armed, prosperous ally instead of an impoverished, defenseless enemy that might fall to the USSR.
Two surprising points of comparison between the UK and Ireland (only country UK shares a land border with, quite similar cultural background, same language etc.):
average UK wages are 44,700 dollars, average Ireland wages 76,000 dollars;
UK government debt 103% GDP,
Ireland government debt 55% GDP
This is no doubt a consequence of differences in inward investment and “Irelands open economy”, but the differences are pretty shocking!
North Sea oil is one of the free gifts the UK has...the other is the City, London's financial hub, which is dispoportinately large compared to the overall UK economy, and a very major contributor to it. If you want hard facts relating to the impact of Brexit, just look at the number of companies that have left the City as a result...
Yeah, I never know how to feel about this. I don't much like going back to the UK now; it feels cold and grey and stagnant to me. But I realise that that feeling is mostly a function of reading the news too much, my English parents getting old and grey, and the fact that I live in the tropics. In terms of hard numbers, yeah, it's not obvious that the UK is doing terribly.
Some of the arguments for the UK's decline quoted above seem completely backwards as well: AH suggesting that building lots of cheap housing is a bad thing stuck out as very wrong.
But the UK being in secular decline does seem like it might be true. Outside of London, it's hard to see what there is. I mean, there's culture. British writing and music remain awesome. But I don't know if that's enough to keep us a rich country.
I think there is also a really fundamental change in culture over the past 15-20 years - really starting with Blair/ Brown. A combination of reforms to taxation/ social security/ welfare/ employment policies; employment legislation and broader human rights (mostly imported from the EU); a massive influx of low-cost, but smart and highly motivated employees from the EU (now being substituted by non-EU immigration) that allowed companies to keep downward pressure on wages and avoid the need to invest in productivity; a high degree of complacency in our elites...all of these set the scene. And then more recently the importation of US cultural issues (BLM, ‘woke’) and the culture war that has caused; the incredibly generous fiscal response to Covid; terrible energy policy; the rise of the WFH culture - which has really set in in the UK to a degree I haven’t seen elsewhere; the stupid in-fighting over Brexit that keeps us re-fighting the last war while not concentrating on the future; and now the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise.
In short, while there are plenty of highly-motivated people, they seem to be wading through treacle in terms of the response of the broader population - and the answer to every problem always seems to be more government: we’ve run a massive deficit for years and there seems to be no prospect of that situation ever improving. Our population feels ever more socialist in its expectations and ideals.
I have three daughters at school/ uni: I very much hope they will have the courage to move abroad and make their way in a part of the world with more ‘get up and go’: I simply don’t believe we can turn this around until we really plumb the depths - and that will take years and much ruin.
"lots of Germans died in WWII, but Germany remained an economic powerhouse"
I'm pretty sure this was not the case. I had a neighbor 'Tanker Fred' who was in the tank company trapped in Berlin in The Cold War. One of the things Tanker Fred said, (paraphrasing) "I could get a very nice meal, with drinks in a fancy restaurant. It cost three marks, which was about 5 cents US." I don't think that's the definition of Economic Power House.
"I’d be interested in seeing the 'government decided to sit on industries in 1900' thesis fleshed out more."
One way in might be to look at the history of British-owned car manufacturers. The UK went from having the fifth largest car company in the world in 1968, British Leyland, to having no mass production car companies with the collapse of MG Rover in 2005. One of the main reasons for this is the Labor government's strategy of cramming several smaller failing manufacturers into one big company with the primary objective of preserving jobs.
Lots of good points already but I think it's worth highlighting how some of them react with each other;
Firstly the 0830 charge to get a doctor's appointment, is that a good thing for productivity to have tens of thousands of people on hold for an hour any given morning and still not get an appointment?
Given that in the UK we have 7 million people on NHS waiting lists how much is early retirement from the workforce due to ill health masking employment figures. People no longer looking for work don't count towards unemployment.
Underemployment is another issue, some households aren't enough hours between two wage earners to get by. This means there are many working poor who are recipients of government welfare typically more associated with those unable to work. Food banks have boomed in the last decade and most recipients are in work.
Housing is a scandal; small by international comparison and poorly built houses which cost 8 or 9 times a median salary in all areas and as much as 15 times in parts of the South East and London. New home building is easily blocked at the local level by existing homeowners.
Some housholds with two graduates from this century can afford housing but typically they already have moved away from where they grew up to a larger city with graduate jobs in only to find after a decade they can't buy property there and then move further out of the urban area and end up facing long and expensive commutes back to where there job is (less so post pandemic in fairness).
Child care is so expensive that having two children in full time, full pay nursery at the same time can be like paying three mortgages each month. Or two mortgages on top of rent which may already be 30-40% of take-home pay. So people are not having children or additional children due to affordability issues.
By my count my wife and I have spent around five years of the median household disposable income on rent and childcare in the decade we've lived together.
The planning system means nothing gets built that could transform an area and provide thousands of new jobs. New runways, airports, train lines, nuclear power stations, reservoirs, solar panel farms, sewers, broadband infrastructure, fracking or on-shore wind - whether you think they would be positive, negative or neutral doesn't matter, none of it gets built. With the exception of one east-west metro line through London which no-one wants to repeat the success of elsewhere.
Add on top of this the fact that mortgages don't run on 10, 20 or 30 year fixed rates and people are anticipating extra payments of potentially £500 a month on mortgages as their fixed terms expire and they move to higher rates not seen since pre GFC- the same as a £10k pa pay cut for a household.
So yes, there's a sense of malaise and decline because on top of all this the Government appear not be interested in Governing. People who didn't want to leave the EU and people who didn't get the type of Brexit they wanted are unhappy, one outcome of that is that the recent crop of government ministers has been beyond appalling. You can't get an NHS dentist, there's rubbish everywhere, teenagers don't have youth programmes to keep them occupied, high streets are dying, the roads are congested, the government has spent billions on a smart motorway programme they seem on the brink of scrapping, threw millions at PPE that didn't work in the pandemic, covered up lockdown breaking parties in the heart of Government, had a PM that lasted less than seven weeks and still managed to contain the death of a well regarded monarch who was seen at least as a fixed point of continuity in people's lives.
>So maybe we can summarize Eric’s theory as “The British economy isn’t necessarily worse, but after Brexit, some goods cost more money, so the living standard affordable with the same amount of economic production has gone down.”
Sort of. A more precise formulation would be that the British economy isn't particularly worse in terms of international purchasing power, but is somewhat worse in terms of local purchasing power, with the latter being more indicative of cost of living and quality of life.
>Is this economically possible? Suppose that it costs more for Britain to import goods. Some of those goods will be raw materials, which will hurt industry, which will lower production, which should make market exchange rate GDP look worse. I don’t know enough macroeconomics to be able to tell if this should be happening.
It is economically possible for PPP GDP and market exchange rate GDP to diverge, which is a big part of why both metrics are tracked. In a "spherical horses in simple harmonic motion" world, we'd expect PPP and exchange rates to converge very quickly because differences in prices are arbitrage opportunities. In practice, PPP and market exchange rates tend to tell pretty similar stories for rich countries, but diverge by factors of 2-3x when comparing rich countries to poor countries.
The OECD's price level index (ratio of PPP to market exchange rates) for G7 countries ranges from 82 (Italy) to 125 (USA), and for all 50-ish indexed countries ranges from 37 (Turkey) to 138 (Israel).
An incomplete list of reasons for PPP and official exchange rates to diverge include:
- Currency controls: the official "market" exchange rate is actually the result of price fixing rather than market forces.
- Trade barriers, both natural (shipping costs, etc) and government-imposed (tariffs, quotas, embargoes, regulatory barriers, etc) preventing price differences from being arbitraged away.
- Differences in prices of stuff that's very hard (e.g. labor) or impossible (e.g. real estate) to import and export in the quantities necessary to arbitrage away price level differences.
Any discussion that doesn’t include the energy and housing situation is incomplete at best. The environmental stuff is way more detrimental than Brexit. But the ruling class in Britain likes that, and hates Brexit, so we don’t get a proper discussion.
An interesting theory explaining why things may feel worse than Econ indicators show: population is significantly undercounted, so per capita metrics are lower in reality than on paper: https://twitter.com/echetus/status/1682676824420253697?s=20
It's because Britain is systematically undercounting third world immigration: their official population is ~65 million, but their true population (estimated by grocery stores, waste management, healthcare utilization, etc) is almost certainly ~75 million. They literally estimate immigration by surveying random people at airports, even though they know that this massively undercounts the results. Of course nominal GDP goes up more than per capita metrics if you do this. And, of course, we all know why the government wants to put out official numbers which underestimate this kind of rampant unskilled immigration.
I, an American on a rich Government grant, did my doctoral field work in British schools in the 70s.
The teachers were wonderfully patient and, whenever I would ask a headmaster how I could express my gratitude, she would suggest buying them dinner because, "They rarely eat meat nowadays”.
GDP is not a particularly useful statistic. It's more useful to track the difference between per capita GDP and median income. That's roughly what people use to judge their own economic condition. People feel better when they're both growing at about the same rate. When the median falls behind, they feel cheated, and a lot of people feel cheated these days. This goes for the left and the right. They just blame different parties and offer different solutions.
England is in worse shape than most. It had a colonial empire which has its own resource curse. The money just rolled in, and, even now, London is a financial capital for sheltering gains extracted elsewhere. This has stunted the rest of its economy, and the economic reforms of the 1980s did nothing to improve the situation. Worse, England has a class system. If you didn't go to the right schools, good luck getting capital, good luck building a new industry. England had smart people and a technical lead. You could get some interesting insight by pondering why The City never pumped money into new domestic industries.
Re; disposable income part of the challenge is that there are different real purchasing-power-parity deflators for different purposes.
Back in 2008, most countries had a high price levels for GDP relative to GDP (https://i.imgur.com/5zEyPba.png) compared to the USA (after controlling for the exchange rate), and this was particularly the case for private consumption (https://i.imgur.com/5zEyPba.png).
The UK also has a particularly high price level for non-discretionary spending, the "Cost of Living", hence the low figure for disposable income.
It's only when you get into the weeds of looking into the price levels of disposable income that you really see UK stagnation relative to OECD comparisons. GDP does tend to look a lot more normal.
And only when you look at this further in the context of an expanding levels of employment in the UK relative to peers that per capita disposable income stagnating means a reducing or at best stationary level of disposable income per worker.
You could alternatively look at consumption levels (rather than prices), and these do a bit better than disposable income growth... But that combines with an increase in household debt that makes them seem less than sustainable.
In general, the Tories have surprisingly actually been relatively successful in what they set out to do, which is that intended to reduce the cost of government and restrain its growth as a share of the economy, and get more people back into the workforce. (The price level of government spending is far lower than when they came to office, and lower than the USA).
But the larger failure is to encourage investment during the period of low interest rates, and to grow the economy per head. Particularly in the North, and areas outside London and the Southeast, whose decline offsets any growth in the SE. Privatization of utilities has generally failed to lead to sustainably competitive prices, and instead of investment, shareholders extract capital from privatized utilities that they purchased at relatively low prices.
The fear is that the opportunity to now increase investment and upgrade the technology base is now gone with the changes in the world interest rate environment, while we're left a nation with relatively high household debts and little ability to stretch further. There is also the fear that the Tories strategy of increasing employment and reducing the cost of government has now run completely into its limits of worsening public services and full employment with no more room to expand the economy that way. The concern is that the UK has become a low wage, high cost, high debt, low investment country and that any attempts to fix this would require major, serious expenditures that will push standards of living down further.
Britain, partly because of political choices, and partly because it is English speaking, has been a magnet for cheap imported labour since 1997. This has allowed both public and private entities to run down infrastructure for 30 years while maintaining prosperity and what happens when you do that is that suddenly you are just really, really unproductive. Brexit, Ukraine and Covid brought the moment of reckoning forward, but the underlying reality is a country where nothing works because cheap labour has been papering over all the cracks.
It's true that the United States has a lot of immigration, but it also has the global reserve currency, and its overall quality of immigration is much better. The only other western country that has as much as Germany, but that started more recently and, anyway, they are also falling apart.
> Most panellists think that Brexit remains the primary drag on the UK’s potential output this year. A small fraction cites poor labour force participation as a major constraint. Several panellists suggest public investments and R&D subsidies as a solution to boost UK GDP in the medium term. Most panellists believe a combination of policies would be the most effective way to achieve this objective.
Britain is an english speaking country. It collects good stats which are accessible to *anyone* in the world who speaks english. It gets analysed far more than anyone else and people can generally find what they are looking for in the numbers.
It has incredible challenges, not least a dysfunctional housing market, but it is not as crazy/bad as the commentary suggests
The feeling of decline in the UK is only partially captured by GDP figures, as it has a lot to do with the drop in the quality of public services. That said, the Mainly Macro post linked in the first paragraph correctly notes austerity and Brexit as the twin causes for the relative decline in GDP per capita. I would add the importance of financial services to the UK economy. The bubble in financial services in the years preceding the financial crisis inflated UK GDP figures up to 2008 and its collapse contributed to a fall in UK GDP in the period following the financial crisis.
The ONS (Office for National Statistics) has revised its estimates of the British economy upwards, and it turns out that, far from lagging at the bottom of the G7, the UK has been doing considerably better than Germany, and just a bit worse than France and Italy. Unless those countries also revise their economic estimates upwards, of course, which is perfectly possible.
I feel like... if we didn't already have a bunch of people saying "things were better ten years ago" with an implied "[when i was ten years younger]" we probably wouldn't be hunting for explanations as to why this was the case with all these charts
and if we just, like, looked at these charts without that context, we probably wouldn't draw the conclusion that things are getting noticeably worse at an abnormal rate
I have a sneaking suspicion that what's going on is ordinary Great Stagnation stuff. But when articles get written about France or Uganda or America declining economically, it feels like dry economic debate, whereas when articles get written about the UK declining economically, the articles become aligned along political lines, and the headline must either specifically blame Brexit, or specifically exonerate Brexit, and so it feels like a bigger question than it actually is. Or at least, a bigger question than other similar questions we might ask of other countries and other periods of time.
Essentially I think there's something related to privileging the hypothesis going on here.
I don't have a very high confidence on this, it's more of a nagging feeling
edit: also, the image displays an american flag burning, whereas the british flag is less on fire. i am upset about this.
> Britain seems to handled inflation reduction very badly.
Keep in mind that they have over 2.5 trillion reasons to do so. With a national debt over 100% of GDP ( https://en.wikipedia.org/wiki/United_Kingdom_national_debt ) policymakers have a strong incentive to screw citizens over by pushing for high-inflation policies.
https://robertfrank.substack.com/p/why-the-national-debt-matters
The selected comments were a decent overview from a statistical perspective, but they all missed a key feature: the tapering off of North Sea energy - both oil and natural gas.
A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
The mechanism is very simple: the UK is a net trade deficit nation without North Sea energy exports: https://www.macrotrends.net/countries/GBR/united-kingdom/trade-balance-deficit
Note how trade balance was fairly even until 1995 when it fell off a cliff.
The UK's need to import food and pretty much everything, was offset by energy exports until the North Sea fields started tapering off. Unlike all the big EU nations, the UK imports literally half of its food - 45%+ vs. high single digits to teens for France, Germany, Netherlands etc.
Food is not something you can work around; but high percentages of food imports are ok if you have energy exports to offset but the North Sea declines flipped the equation - the UK now imports energy in the teens percentage on top of the 45%+ food imports.
Net net: the UK is f'd - especially since they are so keen to piss off the largest nearby source of cheap energy (Russia) who also incidentally is the largest wheat and fertilizer exporter in the world.
I wonder how much of it the discussion is that people are actually paying attention to our economics more after the Liz Truss fiasco, and noticing a lot of Brits are very unhappy when it comes yo the economy and their incomes (eg huge strikes in healthcare and other sectors).
Potentially partly fueled by long periods of austerity and the feeling that it didn't actually fix anything, add on COVID and high inflation and people finally want stuff back but huge rise in debt-to-GDP and Liz Truss mean it's very difficult for the government to fix anything?
The only data point I have on this topic is that engineers in the UK make a lot less than equivalent engineers in the US. To the extent that the US economic and productivity growth is in some way attributable to the tech sector, that matters. Fewer talented people would be attracted to work in the technology sector, fewer smart people from around the former Empire would be tempted to move to the UK to work in technology, and the smartest folks in the UK will be tempted to move to the US. (I'm assuming that a UK > US immigration path is relatively easy, and I definitely meet a lot of people from the UK in Silicon Valley.)
I don't know if this is material or anecdotal, though.
Salaries may be lower in UK but total comp is about the same or even higher in the UK when you factor in the cost of taxes and regulations born by the employer.
Your graphs don't look particularly good for Britain, but they also don't look too good for France, Italy etc.
England is a European country, and Europe as a whole is just not doing so hot. Does there have to be a UK specific explanation? If you're Leave, then Brexit should have rescued UK from EU stagnation, and if you're Remain then the EU is doing well and UK should be trying to match it. I don't think either are true.
Curious how few comments mention that UK embarked on record levels of immigration in early 2000s, with predictable consequences for productivity and wages after just a few years.
I feel like the single most common thing I hear every time someone is describing their geographic area experiencing economic malaise is that housing is too expensive. There are probably a lot of other factors for making objective determinations about an economy, but from a purely feels based framework, it's the single most consistent complaint of the modern era. And I guess it might actually be exploding the Chinese economy as I type this, so that's exciting.
The U.S. also doesn't look great on GDP per capita growth post GFC compared to pre GFC trend. UK still a bit worse, but most of Europe is. It's 50% that the entire developed world would look bad in the first chart, then another 50% made up of a little currency decline, a little extra economic stagnation (more likely due to aging population than government policy), and a little bit of disruption from Brexit and COVID and slightly worse monetary/fiscal policy than other countries.
I think total R&D spending is more relevant than government R&D spending, even when the question is about austerity, because in countries like the US and UK where most R&D is privately-funded, government policy has significant impacts on private funding.
(Loose monetary policy increases all kinds of investment; government spending on high-tech products and services drives R&D in the affected industries; corporate tax breaks can directly incentivize some kinds of R&D investment, and consumer tax breaks can provide indirect incentives, as in e.g. residential solar and EV subsidies.)
If you look at total R&D investment, the US is much farther ahead than the public spending figures alone would make it seem. Wikipedia has a nice summary table: https://en.m.wikipedia.org/wiki/List_of_sovereign_states_by_research_and_development_spending
based on OECD data: https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm
Now, the real problem with the R&D spending hypothesis is that if you go to the OECD page and look at the trends in spending as a percentage of GDP, you see that the UK's rate of investment jumps *up* very dramatically in 2013, nearly doubling in the period from 2013 to 2020. This does not fit with a story of recent systematic disinvestment as a result of austerity.
Here's a nice, simple explanation*: "resource curse", where our 'resource' is not oil or coal (any more), but cheap imported labour (both skilled and unskilled). This would explain the worst-in-class productivity growth and the terrible wage growth. It's also had a number of unfortunate side-effects (housing & infrastructure pressure, education & cultural challenges), which could have been mitigated through good governance but were not (for a number of different political reasons, plus the permanent omnishambles that is the Civil Service).
This resouce, the result first of the Empire and then of EU membership, allowed us to live well, 'beyond our means', for far longer than our policies and governance would have naturally allowed. Depending on your preferred metaphor, Brexit has either ripped off the bandaid and and made things hurt a lot all at once (but now we can see how big the cut beneath is and do something about it...), or kicked out the load-bearing wall that is holding up the whole house.
* Because this is nice and simple I mistrust it, though it feels true and matches my lived experience in the UK.
The government simply doesn’t feel a need to prioritise productivity and nothing seems to convince them to make it a priority. The “northern powerhouse” is basically a comedy meme at this point. That’s basically what’s going to happen when the government is defined by the unproductive elements of the national economy: Landlords, Pensioners, SpAds, and Yellow Journalists.
As a Brit, it is clearly housing to a very large extent, in London and the South East at least. Particularly the "Green belt", which is a remarkably effective way of blocking development in exactly the place it's most needed (surrounding productive cities). Although planning in general is pretty miserable in the UK: lots of uncertainty around the eventual process, and plenty of opportunities for people to veto or appeal.
It's quite different outside London, where incomes and GDP are much lower. There's a convincing argument that lack of transport infrastructure (either public transport or road networks) means UK non-London cities are in effect much smaller than they appear, so they lack the expected agglomeration benefits, see https://www.tomforth.co.uk/birminghamisasmallcity/.
On R&D, I'm not sure how that figure is calculated exactly, but the UK Government has been giving away significant R&D tax credits for things that you probably wouldn't exactly consider research. And I don't think I'm alone in not being sure how to calculate it - the UK Office of National Statistics recently revised their estimate upwards by 62%: https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/researchanddevelopmentexpenditure/articles/comparisonofonsbusinessenterpriseresearchanddevelopmentstatisticswithhmrcresearchanddevelopmenttaxcreditstatistics/2022-09-29.
I don't have a good answer, but it seems to me that most of the data shows the slowdown starting around 2008, which makes Brexit/other recent government decisions unlikely to be primary causes.
I wrote the following back in 2019, and then emigrated in 2022 (having been delayed from doing so by various governments’ overreaction to covid). I paid over 40% tax on my salary in my final year in London (that’s over 40% overall, the highest marginal rate was of course 62% between £100k-£125k). I now pay well below 20%, and enjoy an exponentially better lifestyle. Many of my former colleagues have followed me, and others are planning to do so. I wrote the following not in anger, but in sorrow, about what I perceive to be the UK’s inevitable, and almost inevitably cataclysmic decline:
“There is no money, and those who remain here are being taxed unsustainably. The top 16% already pay 67% of all income tax and overall the top 1% pay almost 30% of income tax. 60% of income tax is now paid by 10% of taxpayers with 95% of those working in the private sector: researchbriefings.files.parliament.uk/documents/CBP-8513/CBP-8513.pdf - top of page 5. An £80k salary puts someone into the top 5% of UK earners: www.theguardian.com/politics/2019/nov/22/factcheck-earning-80000-or-more-top-5-of-uk-earners-labour.
Between 2000 and 2020 there was a near-doubling of NHS spending and a 60% increase in welfare spending (www.gov.uk/government/statistics/public-spending-statistics-release-february-2020/public-spending-statistics-february-2020). There have been nearly 15 years of low growth coupled with huge increases in benefits and healthcare to the cost of pretty much everything else: www.economicshelp.org/blog/5843/economics/economic-growth-stats-2.
Increasing rates further doesn’t work: people will leave or choose to work less - e.g. 90% of GPs are part-time, keeping their salary <£100k (www.pulsetoday.co.uk/news/workload/nhs-england-says-almost-90-of-gps-work-part-time-in-response-to-pulse-survey.)
For over a decade, most of the population have been parasitic on other people's hard work (there's no such thing as 'government money', only other people's money)…”
Full analysis at https://bit.ly/UKprognosis2
I recommend caution when interpreting figures for wages/earnings.
Say someone is working as an employee at Big Business Incorporated with a salary of £60k/yr. They quit, create their own company with themself as the sole owner and employee, and sell their services to Big Business Incorporated for £60k/yr, paid to their company. Their company then pays them a £12k/yr salary (the maximum tax-free amount) as an employee, and the remainder to them in dividends, in their capacity as the owner of the company.
This is a good deal for Big Business Incorporated: they get the same work for the same pay, without providing any of the ancillary benefits (statutory leave, notice periods, etc.) that an employee gets. It's a good deal for the worker, too: their income will be subject to corporate tax and dividend tax, which are less than the income tax they were paying previously. It's a bad deal for HMRC (the tax agency), who lose out on some tax revenue. But, in the statistics you're looking at, I think this would show up as a drop in wages/earnings, from £60k/yr to £12k/yr for this individual.
There's a continual struggle between HMRC and industry to determine to what extent this is permissible. If you're working for three or four companies at a time, never for more than a couple of months, then you're certainly a contractor, and are permitted to declare your earnings this way. If you're working for five years at the same desk, doing the same job as when you were a regular employee, then you're probably going to get in trouble. In between there's a lot of grey area, and HMRC struggles to define clear rules and prove in court when they've been breached.
My impression, from friends in the industry, is that there was a strong trend toward incorporating and declaring oneself a contractor for tax purposes through the 2010s in the IT sector, and that there's been a crackdown in the last couple of years. This sector might be enough to make a significant difference in the earnings plots you've shown, or the same could apply to other sectors. If I'm correct about this, then future figures for wages/earnings should increase relative to GDP per capita (as a consequence of the crackdown): their decrease relative to GDP per capita through the 2010s will have been an artefact from an accounting trick.
I don’t have any great insight as to causes, but I’m friends with the head book/paper conservator at Cambridge University. Cambridge is a great place to live, with expected very expensive housing and other costs. He was hiring a new conservator—a highly skilled, specialized, valuable job. The starting pay was 25k GBP. I was absolutely gobsmacked. I have no idea how anyone can live on that in Cambridge.
Further to my comment below, I should perhaps have cited the conclusion not the opening:
“The UK's Overton window was set decades ago by well-intentioned post-WWII socialists who implemented superfically attractive schemes of healthcare and benefits which were sadly both economically illiterate, and - in the long term - deeply counterproductive. They effectively threw evolution into reverse. The UK's fate was determined once more than 50% of the electorate became net “takers”. This outcome was inevitable given policies implemented in the post-WWII years. The UK has been on an accelerating downward spiral of higher taxes and worse productivity ever since. Now that parasitic voters are the majority, they will – quite rationally – insist on voting themselves increasing swathes of other people’s hard-earned money. The only rational choice for the latter - if they can - is to get out:
• The 46% of productive people in the UK who put in more than they take out are shackled to a corpse. They cannot change the reality of UK productivity and economic performance, and the policies which in a democracy must flow from that.
• Those who do not want to suffer ever-higher taxes and wealth confiscation should emigrate. Between Dubai, Hong Kong, Cayman, BVI, Singapore and other locations, there is no requirement to ever pay more than 17% tax ever again (if that).
• The UK is long overdue a vast correction to reduce the standard of living to a sustainable level. The process to get there will take decades and be brutal.
• Project Fear will be wishful thinking. The UK took a wrong turn by embracing socialism in 1948. Its subsequent economic history has been one of continuous decline, puntuated by temporary and non-replicable periods of superficial adequacy (joining the EU, selling off utilities, North Sea oil boom, selling council houses, printing money, suppressing interest rates, increasing borrowing, increasing taxes). The barrel is now empty. Those who can should get out.”
Full analysis at https://bit.ly/UKprognosis2
I lived in the U.K. from 2006-2012. You could see the beginnings of the malaise then. Until 2008 the post Blair boom was clearly ongoing, and it was a happy place in general. I feel Brexit later on caused a rift in the psyche of the country; if you are going to change your society via referendum, better make sure the winning side wins overwhelmingly. (There’s a similar argument that Scottish independence should need far more than 51% to succeed).
And wages? I was invited back to London recently on the same nominal contractor wages I was earning in 2012. That’s a real reduction of 30% ( at a quick estimate).
Most other people I know haven’t had raises for years, and are far below inflation these last two years.
Meanwhile the U.K. is also buffeted by the culture wars, and the whole thing is amplified post Brexit because the (young) left has not forgiven the (old) right for what they think is a betrayal of their future livelihoods.
And inflation, tamed in the US, is still ongoing in the U.K. (and Europe in general). Two years of 8%+ inflation would be hard to recover from, particularly from what we have seen in the graphs above regarding household income. Three would be a disaster. And there’s the general feeling of a decline in the public space as well.
Still the British are an industrious people and can come out of this in time. It kinda looked like wages were growing pre covid.
Two key drivers of “UK economic malaise” discourse:
1– Recently, the UK has had significantly higher inflation than the US and the Eurozone without as much success at returning to pre-COVID trend. Price stability affects perceptions of economic performance, and most observers expect that the UK’s particularly high inflation rates will require particularly harsh corrective measures (starting from a weaker economic baseline than the US did when its year on year CPI was similar).
2– The UK had above-European-average growth rates during the 1980s and 1990s. Reverting to France-like performance felt like a comedown, particularly because Britons don’t enjoy the sort of labor market protections, free university educations, long vacations, and short workweeks that their counterparts across the Channel have probably traded some of their growth potential for. Continental Europe-like economic stagnation without the various compensations that help the continental Europeans enjoy a higher quality of life per PPP-dollar of per capita income than say, Americans do particularly sucks.
One piece of anecdata: British academics are particularly poorly-paid. This is less of an issue in other fields, but in the field in which I am a professor (CS), the only financially sound reason to take a UK academic job over a comparable US one is family money. I have a longstanding love of the UK and would chose it over the US in a heartbeat, for largely cultural reasons, but I could not justify the approximately 2/3rds pay cut to my wife, in the face of much more expensive housing.
This has had a profound and long-lasting effects for the country's tech sector. The only reason the UK has any presence at all in AI/ML is because of DeepMind, which happened in London because Demis Hassabis was a postdoc at Gatsby and liked it, and has family money. That's not to say there aren't plenty of brilliant British AI/ML academics; it's just that, DeepMind and its ripple effects aside, most chose comfortable middle-class lives elsewhere, and have been doing so for decades.
For calibration: a strong British university at which I would love to work recently advertised a Lectureship (equivalent to an Assistant Professorship) at £38k per year. The Assistant Professorship I landed in the US started at $120k a year, for nine months. You can add the extra 3 months summer funding if you get some grants (an option not available in the UK), which isn't hard in this environment, so effectively $160k.
These are jobs that are supposed to attract only the very top tier of researchers with PhDs, and require huge amounts of training. I only managed to land mine in my mid-30s. £38k. Extrapolate that to the rest of STEM and run that model forward for decades and see what you get.
From my perspective on the ground the decline certainly feels very real, in a way that's not reflected in the GDP stats. Even the median income and wages figures only suggest a stagnation since 2008 at worst, whereas if you asked the median person I'm sure they'd say the standard of living had worsened, even prior to the recent inflation.
I'd say the most obvious cause would be housing. Although this FT article says the housing crisis in the UK is fairly typical for an Anglophone country, and less severe than in non-English-speaking developed countries (maybe the lesson to take away is we should switch to another language).
https://www.ft.com/content/dca3f034-bfe8-4f21-bcdc-2b274053f0b5
The other Anglophone countries, the US in particular, don't seem to be in as dire a predicament as the UK is, whereas some of the continental European countries are arguably in a more similar position. Which makes me doubt housing is the crucial factor, bad as it is. This could be the reason the GDP stats are still relatively strong though, since an inflated housing market will boost those.
It's a bit of an out-of-left-field explanation, but for my entry in the book review contest I argued that Britain has an extreme case of what David Graeber termed Bullshit Jobs. Large sections of the economy have come serve dubious social purposes in the last decades, i.e they're not obviously welfare improving.
https://claycubeomnibus.substack.com/p/bullshit-jobs-review
If the UK really is performing unusually poorly economically in comparison to other developed countries, I'd argue that's the structural factor that's most unusual in the British economy.
To focus in on one part of the discussion - I think the wages/real wages distinction is worth reflecting on.
There are three different wage values that a person might be interested in:
1. nominal wages (which you show), ie the actual figure printed on people's paychecks. It's meaningless.
2. real wages in domestic currency (which you show), ie the figure on people's paychecks deflated by domestic inflation.
3. real wages in dollars, ie the figure on people's paychecks converted to dollars by the contemporary exchange rate.
I think - and I might be misreading - that you posted charts 1 & 2 but, going by your reference to the exchange rate, interpreted them as charts 1 & 3.
I might be wrong trying to correct you here though, because the basket of goods used to deflate (2) is at least partially imports, and so a drop in the pound around this time should indeed make the basket more expensive and so it's kind of a moot point to make.
But that leads to another, fuzzier point. The devaluation of the pound happened basically all in one go in 2008. It's been stable at around the same level since then. And so if you want to use the pound's devaluation to explain stagnant real wages, you have to claim that the effect of the devaluation has leaked into the price of the basket of domestic goods over 15 years.
Which feels like a very long characteristic time for such an effect.
> I’d also like to understand more about how public R&D spending works. Is the government just funding basic research? Or are they helping companies make products? If the basic research, why are the benefits so limited to the individual country that the research is being done in?
I think I can try giving a bit of insight on this, though anecdotal. I worked in a public British R&D institution for years and the story was, roughly:
1) salaries were awfully low compared to the industry, we're talking below £40k for experienced, senior researchers who could easily go out and earn £60k-£70k elsewhere. Literally only held by their passion for the work, and hiring was super hard. This also because the government explicitly blocked the increase in salaries for years (as it did for all public workers, because austerity)
2) funding was given through grant programs that the workers themselves had to continuously apply to to find money for their own salary - not as bad as it seems like it is in University as some programs were relatively reliable to be renewed, but still, more productivity down the drain (writing often inane grant applications that didn't say much and would be thrown in the almost stochastic and often politics-driven engine of bureaucratic committees)
3) but most importantly, lots of funding was essentially a roundabout gift to private companies. Programs had a much better chance of going through if there was some kind of partnership with a private company involved; then the public money pays for e.g. a few PhD students or infrastructure like supercomputers which is then preferentially used by the companies, with the public researchers mainly getting the crumbs that fall off the table, and often they'd then get to keep any useful results under NDA and patent them, whereas the scientists only published what results they were allowed to in papers and that was it. Industry would always get the red carpet treatment over anyone else. This resulted in some rather humiliating situations - in one my whole group was literally kicked out of a building at short notice and forced to scramble to find a different office to make room for companies that were establishing a presence on campus.
So I think it's understandable how this stuff doesn't work much: poor retention, worse hiring, and what is done often ends up benefiting directly only a handful of companies who may not even exploit its full potential, as the partnerships are designed specifically to boost directly British industry.
Part of the problem with Britain today (and perhaps the past) is the elite dislike of practical subjects. Even mathematics (not practical in its pure form) comes in for attack from British “thought leaders”
This is from Simon Jenkins, bemoaning the “Tory driven cult of mathematics”. Every sentence is bunk, so I will leave to the reader to debunk it in his own way - watch in awe as a graduate of theology wonders about the practicality of math.
https://amp.theguardian.com/commentisfree/2023/jan/05/maths-schools-rishi-sunak-arts-sport
I suspect Jenkins hates mathematics because he wasn’t very good at it, but he comes from an elite class (hence the guardian gig) and it pains him that plebs who may not have even had private schooling, or gone to Oxford, might have some ability here that he doesn’t.
But this couldn’t be right, could it? How could the plebs be smarter than Jenkins, some of these blighters went to red brick universities. Shudder.
This isn’t unique to Jenkins, practical subjects are generally frowned upon even in the elite universities. The future politicians are doing classics and philosophy. And mathematics isn’t the under graduate course for the future ruling class either.
It’s been like this for decades, perhaps for ever, but the chickens are perhaps coming home to roost.
> Further complicating this narrative is the fact that Europe in general is experiencing economic stagnation.
My impression is that the EU is handling pretty well overall. They handled COVID decently and the economy in general for Eurozone countries atleast seems much better off than the UK (https://www.theguardian.com/business/2023/may/15/european-economy-expected-to-grow-faster-than-forecast-says-eu)
Plus inflation is also projected to drop significantly.
I think people are misjudging the raw numbers - EU will never have the rapid economic boom enjoyed by the asian countries - the standard of living within the EU is already pretty high, among the top few in the world.
EU was never going to become some sort-of economic "superpower" - indeed, the reality is that no serious politician lobbies for that. The paramount priority is to reduce disruptions to citizens' quality of life and slowly improve it to maximize votes/support.
Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
The comments from AH about an economy overly dependent on housing, low skilled immigration and selling degrees to international students all apply to the Australian economy too
The stuff about housing and a rentier economy sounds like Henry George's thesis on what happens to otherwise successful economies in the long run.
If you ask the Georgists, they'll tell you this is what it looks like to be moving toward the inevitable equilibrium state of housing markets given long enough without war or mass destruction of other kinds. A state in which land is owned by the few and inherited by those lucky to be born to them, who extract rents from the many.
A state staved off only temporarily by developments such as the automobile or mass transit which made land further from city centres viable to live in. Resetting things somewhat and delaying the eventual ossification of land ownership to a later date.
Georgism used to be incredibly popular. I wonder if we'll see a resurgence.
There was a related discussion over on the Motte: [Is GDP per capita really a good indicator of quality-of-life?](https://www.themotte.org/post/587/culture-war-roundup-for-the-week/121247?context=8#context) Here we have an economy that’s apparently bad in a way not captured by the usual GDP marker.
I was toying with that idea of energy consumption as an index. Intuitively, it seems like a good idea—more energy spent means more production, right? It’s decoupled from currency. We’d expect something like the British shift into housing, or any unproductive sector, to go with a decrease in energy.
Unfortunately, I couldn’t find data for UK energy. Not [past 2014](https://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC?locations=GB), at least. And there are some other problems with the metric, especially regarding technology and trade, which probably have more effect on the curve.
UK suffers from a lot of the same problems as the rest of Europe, except unlike France/Germany, it's economy is less complementary to the US (finance/tech which US does better, rather than luxury goods or heavy industry)
To answer your question about German economy post WW2: immediately afterward it was very bad. So bad. Barter system, food rations, bad. Lack of workers (dead soldiers) was a big reason.
The recovery to become again an economic power is called the Wirtschaftswunder (Economic Miracle), and is worth reading about: https://en.m.wikipedia.org/wiki/Wirtschaftswunder and https://www.investopedia.com/articles/economics/09/german-economic-miracle.asp#:~:text=Germany%20After%20the%20War,the%20start%20of%20the%20war.
Some highlights: replace the old bad currency with a new one, strong central bank, strong regulations, strong social net, large tax cuts, remove price controls.
See also Ordoliberalism https://en.m.wikipedia.org/wiki/Ordoliberalism
Thatcher sold off huge amounts of public housing under the Right-To-Buy scheme, to the people living in them, at massive discounts. This was very popular, since it was basically giving away cheap houses, and bought Thatcher a lot of the political capital she needed to enact the rest of her agenda. In fact, it converted a lot of people into Conservative voters, since people who own property have a reason to protect that property.
However, it meant that the government no longer owned any public houses, and Thatcher certainly did not intend to build any more. It was a one-time-only deal, made for short-term political gain, and a terrible investment in Britain's future. The government had essentially sold off a lot of valuable property at below-market prices in order to create a bloc of lifelong Tory voters, permanently shifting Britain's politics in a Conservative direction while also leaving it without the capital it needed to invest in future generations of Britons. Hence the age gap in British voting patterns now.
The whole 80s neoliberal revolution was like this. The reason America's national debt is so high now is because the Reagan administration completely abandoned fiscal discipline, tripling federal debt in order to slash taxes without having to totally dismantle social services. Basically, the government took out a huge loan in order to buy long-term political support from what would become the boomer generation, guaranteeing them constantly increasing property values for the rest of their lives. This is coming apart at the seams now because the boomers - while remaining completely bought in to 80s conservatism - are getting old now, and there's not enough money left to do it again.
The old British people who are now fucking up the country were deliberately shaped into a constituency of Tory voters by Thatcher in the 80s - not just through Right-To-Buy, but through a whole range of other means. They were guaranteed all manner of special privileges - notably, constantly increasing house prices - in exchange for their complicity in dismantling the social-democratic institutions of the post-war period. These special privileges were expensive and came at the cost of long-term investments in Britain's future. Hence, the state of the country now.
These analyses are way, way too macro to capture the malaise here on the ground. I'm a Canadian immigrant to the UK, and the *feel* of the two places is radically different. There are a lot of things I like about the UK, but it does feel like the country is going to the dogs.
- Teachers, doctors, nurses, have all had real terms pay cuts of 20-30% since the financial crisis - the educated backbone of the society can't afford a decent life on two full-time salaries. Inflation just has not been matched by salary increases (junior doctor table here: https://www.bma.org.uk/media/6134/bma-ia-pay-restoration-methodology-13-september-2022.pdf)
My wife is a teacher, is literally one of the best teachers in the UK (they're formally ranked), is making as much as a teacher can make (there are various top-ups for extra responsibilities, excellence in teaching, etc), and if we were both on her salary we couldn't afford to buy a modest terraced house and send our daughter to nursery.
- Speaking of that, the UK has some of the highest childcare costs in the world: Many people I know, who are passionate about their jobs, literally can't afford children and to keep working. These are university-educated professionals doing practical work (engineering, medicine, etc)!
https://www.theguardian.com/money/2021/sep/12/how-do-uk-childcare-costs-stack-up-against-the-best
- Perhaps unsurprisingly given the above, wait times for the NHS are at all-time highs (https://www.thetimes.co.uk/article/nhs-waiting-lists-record-high-2023-pqtqt9rrv), and teacher recruitment at all-time lows (https://schoolsweek.co.uk/dfe-misses-secondary-teacher-recruitment-target-by-over-40/)
- Public dental care has, effectively, been disappearing over the past decade (https://bda.org/news-centre/blog/Pages/NHS-dentistry-have-we-reached-the-point-of-no-return.aspx), with a return to the poorest pulling out their own teeth (https://news.sky.com/story/britons-are-pulling-their-own-teeth-out-with-pliers-because-they-cant-access-nhs-dentists-12920715#:~:text=A%20YouGov%20poll%20which%20spoke,out%20in%20the%20last%20year.&text=People%20across%20the%20UK%20have,NHS%20dentist%2C%20a%20report%20suggests.)
- This sense of malaise goes down to the individual level: A record number of people are recorded as being out of the labour force due to long-term illness. Some of that is related to the wait list point above, but much is fuzzier, even though formal 'unemployment' is quite low. https://www.independent.co.uk/business/unemployment-statistics-sickness-ons-b2339882.html
Whilst long-term sickness is biggest amongst the older, school refusers have shot up, to now c.20% (!) of students missing a large number of classes (>10%) without good reason
https://inews.co.uk/inews-lifestyle/traumatised-children-refusing-go-schol-parents-paying-price-2428811
-UK companies don't really believe in the future. I work for a UK-based multinational bank, and despite a few flashy programmes, we're running on ancient computers and they constantly skimp on training - it's the second-worst in the G7, after Japan (which doesn't even have very many young people to train, and is notoriously averse to digital solutions)
https://www.ft.com/content/608ec0af-58c6-4f50-85e5-c39c05e095fc
- This is harder to capture in macro data, but the *quality* of many things are shockingly bad in the UK. Houses are not only insanely expensive versus salaries (>10x in London), but just bad quality - drafty, moldy, shoddily built, and small. Cars are mostly still manual. Doors use old bolt locks. Street cleaners are manually pushing things around with a broom. A stunningly low proportion of homes have dishwashers, or washer/dryers.
- There so much litter, in a way I haven't seen in other developed countries. People just throw their trash on the floor. It was already surprisingly bad when I arrived in 2013, and has gotten materially worse since.
https://inews.co.uk/news/britain-in-litter-crisis-1055667
I know people have long explanations for everything, but my sense is simply that it is too damn hard to build property.
This (i) makes office space expensive so hurts employers, and (ii) makes life very very very expensive for everyone who rents or tries to buy housing.
I work in the same industry as my dad, and I earn roughly what he earned at my stage in life approximately 30 years later. Meanwhile, I paid 3x for my first house what he paid for his equivalently sized house in the same area.
Property prices have squeezed money out of real incomes, and the government have responded by raising taxes to try to weakly subsidise housing (disincentivising work and businesses) without addressing the root of the problem, the planning system.
We also waste a disgusting amount of money on a totally dysfunctional health system, that is beyond a joke and is unfit for purpose. At some point, people will wake up and stop worshipping at the altar of the NHS, realise it is an idiotic system that does not incentivise efficiency or outcomes, and we can release massive amounts of money into a productive healthcare system.
So, planning restrictions, and the NHS. My two cents.
New Zealand had *negative* deaths relative to normal years due to covid? Wow.
“Most people's savings are locked in housing, a non-productive sector. “
This is wrong on two counts. No money is “locked” in housing. Every purchase price is a sales price. At a national level, the UK cannot invest more in housing except by constructing more physical housing. I don’t think they’ve done too much of that. They’ve done too little.
Is housing not productive? What if I told you it was a factory working 24 hours a day, 7 days a week to keep you warm and dry?
We have several citations of "austerity" in the post and the comments -- have we established that austerity actually *happened*? When I look at UK government spending (https://www.gov.uk/government/statistics/public-spending-statistics-release-july-2023/public-spending-statistics-july-2023), the only decrease I can see on Chart 1 is from the peak of pandemic spending, and that decrease is still to a much higher spending level than pre-pandemic. Austerity in government spending seems to mean that spending increases less quickly than someone wanted, not that government actually spends less.
I have heard pundits for many countries refer to austerity, but that austerity (almost?) never refers to lower government spending. At most, it refers to slowing the rate of increased government spending.
Either way, is there a reason we would expect increased government spending to be a driving factor in economic growth? Government money comes from somewhere (taxes), and GDP=C+I+G+(X-M). Increasing G usually comes from taking money away from I. Unless we have reason to believe that government spending creates more long run growth than investment, we should probably expect increased spending to be negatively correlated with growth. Maybe there are countries where government investment is especially important, but do we have evidence for that in the UK?
Most discussions of austerity are in terms of reduced welfare spending and social programs. That is redistribution of wealth so it can be used for current consumption, not investment in future growth. You can argue that redistribution increases aggregate utility in the current year, but that seems at best neutral for future growth if the redistribution is shifting C around between citizens and negative for future growth if it converts I to C.
You have to take the charts as you find them, I guess, but many financial charts are intuitively clearer if the vertical scale is log rather than linear.
The UK speaks English, so it’s navel-gazing is more accessible; beyond that, most of this is the general European stagnation.
The caveats to this are that the UK is a bit (not massively) more unequal than other developed European countries, and has much looser employment laws; as such, it has less unemployment (particularly youth unemployment) but more low-wage workers. It’s also got lower public investment, and is inexplicably in love with a worst-of-both worlds model of semi-privatisation which tends to reduce private investment in infrastructure. This isn’t a huge real effect, but crucially it makes everything look crap because no-ones incentivised “make it look nice” or improve user experience. The result is everything seeming more late-Soviet than it is.
Finally, the universal decline in politics manifests itself in the UK as two groups of underwhelming relics whom no-one expects to meaningfully change anything. This probably isn’t a fail-state compared to everywhere else, but adds to the aesthetic aura of doom.
One thing that has not been mentioned here at all is income inequality, where the UK takes second place among developed countries, just behind the US. I think that a generally slower economic growth that is also absorbed by the top 1% to a greater degree can feel like economic decline for most of a countries inhabitants.
I couldn't find any nice graphs comparing income inequality over the past years of different EU countries, so I'm not sure if there is something unique going on in the UK.
Two remarks, unrelated to each other but related to the post:-
1. The first four paragraphs of AH's comment (rentier/monopolistic economy, non-productive investment, dependence on cheap immigrant labour, property bubble system trap) exactly fit New Zealand. And yet the charts seem to pick out NZ as doing well,* while the UK is doing badly.
The difference between the UK and NZ is that in 2008 NZ got a Free Trade Agreement with a huge new economy, China, while over the period in question the UK slowly decided to erect trade barriers against its largest markets and suppliers.
* It doesn't feel like that, to someone in the lower half of the income range. My grocery bills have doubled since pre-Covid days, and I no longer buy expensive brands or foods (meat). Income inequality, or at least well-being inequality, seems to be skyrocketing. My housing and other core costs have increased too; the sole exception being medical prescription costs.
2. Just like the Kaya Identity for global CO2 emissions, there is a GDP identity:-
GDP per year = number of people working, times hours worked per person per year, times number of value-producing operations per hour, times value per value-producing action. Employment, hours, work intensity, and "productivity".
(GDP/year is then spread over all people, including children, the aged, and others not in work, to arrive at "GDP per capita".)
All of these components need to be examined. (I'm not doing any investigation here; I'm just writing some introductory notes.)
For employment, looking at Unemployment is highly** misleading; a better indication of the health of employment is "number of prime age (25-54) males in employment". (It's still women who get taken out of the work force by child-bearing and -raising, and there seem to be cyclical (cultural?) factors at work there. So to focus on employment robustness, males are an easier indicator to use.)
In Britain's case, "the 25-54 males in employment" chart on FRED dropped two full percentage points at the start of Covid, it and has only recovered one of them. Everything else being equal, there's half the explanation.
FRED has discontinued its chart of average annual hours worked per employee, but it seems likely that the downward trend has continued over the last decade.
Worker utilisation, or work intensity, numbers are the hardest to come by, but they are critically important. Here's an explanation of what I'm talking about: Say a Costa barista was making 100 coffees in an eight hour shift, but now makes only 80 on average. Or a hairdresser was averaging ten haircuts, but now does nine. They're working the same number of hours, and they're employed, but output is lower, because demand has decreased. Likewise, if a salesperson for Acme Widgets used to write five sales-related emails per hour, but now writes only four, her work intensity has reduced. (Thanks, IT! The new cloud-based AI system is sooo good, really. Even if everything now takes three times as long to do, and re-do, and re-do...)
The reasons why this happens at an aggregate level can be manifold and complex. Enjoy your dive into this rabbit hole. You'll be groping in the dark, mostly; economists are astoundingly lazy, and won't work on anything if the data are hard to come by, even if it's important. Drunk, lost keys, streetlight.
Now, "value per value-producing action". For a barista or hairdresser this is easy: the average sale price of coffees or haircuts sold. Perhaps customers are going for cheaper options. For a security guard? Hmm, that's trickier.
At an aggregate level changes in this figure reflect changes in industrial composition, the relative size of industries. If lots of people in the UK have moved from (say) high-value industrial machinery manufacture to (say) low-value Amazon order fulfilment, they may be still employed, and working the same hours, and working at the same intensity (harder, even), but producing less value than they were before.
This is another rabbit-hole in which to burrow. Enjoy!
** I originally wrote "quite misleading", but this is an American site, and "quite" is likely to be misunderstood.
A declining currency is usually regarded as a good thing for exporters. The cost of the value add that happens within a country goes down.
What, exactly, does GDP tell you? If I manage to make a car for half the cost that it went for previously, that's an advance. Does it show up in GDP if I don't make more than twice as many cars at the new price? If people buy the same number of cars at a lower price and then use their excess cash to purchase other goods is that neutral? Or a gain in GDP?
GDP, as I understand it, gives zero or negative value to technological improvements. That seems a noteworthy blindspot.
I recognize that adding a person to the population tends to increase GDP, and countries with faster growing populations will show increased GDP growth, yes? How does population growth tend to impact GDP per capita, though? There was a fear that some developing countries would have such explosive population growth that they couldn't develop economically. That sounds like a scenario where GDP growth could hide some deeper problem, right?
It should be noted that income inequality is higher in Britain than in France, so when they have similar GDP per capita, your median Pierre is better off than your average Peter.
AH, whose comment you quoted, gave a good summary of the property-related reasons for longer term decline, AIUT.
But in recent years, say the last thirty, another factor has also come to the fore: Successive governments' ever more determined and desperate efforts to "game" the headline GDP figure by increasing public spending, which is included in this pernicious and outdated measure of national prosperity.
The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS (National Health Service), huge rates of immigration both legal and illegal (which somehow increases GDP, although I'm not entirely sure how), and various massively expensive and near useless white elephant projects such as HS2 (a Victorian-style rail project that somehow strayed into the 21st century), and of course above all a voracious insatiable appetite for the money to fund it all this public spending. In relation to the latter, most of our large companies and assets have been sold to foreign buyers, and taxes are currently at record levels. So it seems like this GDP Ponzi scheme is fast approaching a denouement.
It's a wonder that institutional investors don't twig that overall GDP (and not even GDP per head) is a rotten measure of prosperity. I suppose the obvious answer is that they know this all too well, but don't want to rock the boat and risk reducing the value of their investments.
Brexit did have a short-term small adverse economic effect, which even the most ardent Brexiters realised at the time of the vote was inevitable. But some politicians and most of the "high-brow" Remainer-biased media (in the UK and the US) have greatly exaggerated the effect and continue, ever more unconvincingly, pointing at Brexit as the reason for all our woes. So I would treat that with a pinch of salt. The big picture is that the UK is really no worse off economically than most other EU countries. We have been agreeing trade deals far and wide ever since we left the EU, which would have been impossible had we still been shackled to it!
What you also have to factor in when talking about decline is stuff that doesn't show up in GDP figures. The NHS is in a horrid state - to get seen by a doctor, you have to phone the GP surgery on the day you want an appointment, usually when it opens around 8:30am. Everyone is doing this so you are put on hold for up to an hour. Then you have to explain your complaint to whoever answers the phone, and it gets triaged by a nurse - then if you are lucky you get an appointment or more likely a call back from the nurse. This system seems to be an informal way of rationing healthcare so only people who don't have to go to work or drop kids off at school can use it (i.e. mostly old people). Transport infrastructure is also falling apart. The government can't seem to get on top of potholes and there are always problems with the trains, moreso it seems than a decade ago.
Most British people don't look at GDP figures or bother much about how other countries are doing, but still complain of a sense of decline. Its also worth noting that national figures don't show the regional picture - most of the industries doing well are situated in a triangle between London, Oxford and Cambridge. Outside of that the economic situation is comparable to Eastern Europe.
Brexit is too recent to take the blame for this IMHO - long term demographic trends are more likely. We are an aging society that has chosen to pay for healthcare in a way that can get really expensive. Elderly voters have used their electoral power to secure continued free access to healthcare (albeit with rationing e.g. above) as well as absurdly inflated state pensions via the triple lock. The cost of keeping the postwar generation happy drives taxes higher and squeezes out investment.
A lot of comments have highlighted that issues around housing are not unique to the UK, with all of the anglosphere suffering from awful planning and huge housing costs. However, I think there are a few particular characteristics of the UK that make this more important.
First, the UK is simply much more densely populated than the US, Canada, Australia or NZ. Housing here has always been a lot smaller than similar countries (European housing as well) which will surely contribute to a poorer feeling.
Similarly, UK housing stock is very old, with a lot of pre-WW2 housing still in use. This lowers the quality of British housing relative to other nations.
So you've got older, smaller houses than elsewhere with less land. I don't know if there's any data on this, but I would also speculate that the relative shortage of land meant Britain was starting from a higher point with respect to housing costs, but can't be sure on this.
But it's not just a shortage of land - it's a shortage of productive land. The town and country planning act of 1948 has already been mentioned in an earlier comment as being particularly destructive. The creation of "the green belt" surrounding all of Britain's major cities essentially calcified them permanently in their 1950s states, preventing any housing from being located in the most productive areas around cities. I think it would be interesting to look at median housing costs for e.g. the 5 biggest metro areas in each nation rather than the whole nation, or to look at % of total population living in big cities for different countries. I suspect the UK would come out very poorly. After all, anyone can name several major metro areas for the US, Aus, or Canada, but the UK just has London - and even that city is far smaller than it should be.
Inflation is high because the UK imports most of its food. Groceries like green beans routinely come from Kenya.
As for the structure of the economy, the UK’s remarkable political stability (plenty of strife and civil wars but no successful revolution) means much ownership of land is still concentrated in the feudal aristocracy, not least the royal family. When combined with a nominally democratic political system that protects their interests (leasehold never abolished, no property tax other than stamp duty on property sales the feudal never engage in), it’s no surprise so much of the economy centers on rent-seeking, often literally.
While by the end of WW2 lots of German men had died, the industrial output was falling, and the large cities were in ruins, the industrial *capacity* has not been significantly reduced because machines etc. could and have been sheltered from Allied bombardment - in fact, Germany's industrial capacity has been higher at the end of WW2 than at its beginning. Manpower and access to resources were the limiting economic factors in the end for Germany. Once these impediments had been cleared through political and financial support (Marshall Plan instead of Morgenthau Plan), and workers brought in from e.g. Spain, Italy, Turkey, Germany could quickly pick up the economic pace. Germany had the dubious luck of being *the* frontline in the Cold War and thus the USA saw fit to keep them as an armed, prosperous ally instead of an impoverished, defenseless enemy that might fall to the USSR.
Two surprising points of comparison between the UK and Ireland (only country UK shares a land border with, quite similar cultural background, same language etc.):
average UK wages are 44,700 dollars, average Ireland wages 76,000 dollars;
UK government debt 103% GDP,
Ireland government debt 55% GDP
This is no doubt a consequence of differences in inward investment and “Irelands open economy”, but the differences are pretty shocking!
North Sea oil is one of the free gifts the UK has...the other is the City, London's financial hub, which is dispoportinately large compared to the overall UK economy, and a very major contributor to it. If you want hard facts relating to the impact of Brexit, just look at the number of companies that have left the City as a result...
https://www.ey.com/en_uk/news/2022/03/ey-financial-services-brexit-tracker-movement-within-uk-financial-services-sector-stabilises-five-years-on-from-article-50-trigger
...and the declining surplus:
https://www.ey.com/en_uk/news/2022/03/ey-financial-services-brexit-tracker-movement-within-uk-financial-services-sector-stabilises-five-years-on-from-article-50-trigger
..and of course the pound fell after Brexit and stayed low, as Scott's chart showed.
https://www.economicsobservatory.com/how-has-brexit-affected-the-value-of-sterling
(If a labour govt wiped 15% off Sterling, you would never hear the end of it from conservatives).
Yeah, I never know how to feel about this. I don't much like going back to the UK now; it feels cold and grey and stagnant to me. But I realise that that feeling is mostly a function of reading the news too much, my English parents getting old and grey, and the fact that I live in the tropics. In terms of hard numbers, yeah, it's not obvious that the UK is doing terribly.
Some of the arguments for the UK's decline quoted above seem completely backwards as well: AH suggesting that building lots of cheap housing is a bad thing stuck out as very wrong.
But the UK being in secular decline does seem like it might be true. Outside of London, it's hard to see what there is. I mean, there's culture. British writing and music remain awesome. But I don't know if that's enough to keep us a rich country.
I stopped pretending to understand economics years ago, but if you are interested in public R&D spending in the UK, start here: https://www.gov.uk/government/organisations/uk-research-and-innovation
I think there is also a really fundamental change in culture over the past 15-20 years - really starting with Blair/ Brown. A combination of reforms to taxation/ social security/ welfare/ employment policies; employment legislation and broader human rights (mostly imported from the EU); a massive influx of low-cost, but smart and highly motivated employees from the EU (now being substituted by non-EU immigration) that allowed companies to keep downward pressure on wages and avoid the need to invest in productivity; a high degree of complacency in our elites...all of these set the scene. And then more recently the importation of US cultural issues (BLM, ‘woke’) and the culture war that has caused; the incredibly generous fiscal response to Covid; terrible energy policy; the rise of the WFH culture - which has really set in in the UK to a degree I haven’t seen elsewhere; the stupid in-fighting over Brexit that keeps us re-fighting the last war while not concentrating on the future; and now the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise.
In short, while there are plenty of highly-motivated people, they seem to be wading through treacle in terms of the response of the broader population - and the answer to every problem always seems to be more government: we’ve run a massive deficit for years and there seems to be no prospect of that situation ever improving. Our population feels ever more socialist in its expectations and ideals.
I have three daughters at school/ uni: I very much hope they will have the courage to move abroad and make their way in a part of the world with more ‘get up and go’: I simply don’t believe we can turn this around until we really plumb the depths - and that will take years and much ruin.
Since about 2008, the entire of Europe, not just the UK, looks bad compared to the US: https://danieljmitchell.wordpress.com/2023/07/19/the-welfare-states-damaging-impact-on-europe-part-ii/
"lots of Germans died in WWII, but Germany remained an economic powerhouse"
I'm pretty sure this was not the case. I had a neighbor 'Tanker Fred' who was in the tank company trapped in Berlin in The Cold War. One of the things Tanker Fred said, (paraphrasing) "I could get a very nice meal, with drinks in a fancy restaurant. It cost three marks, which was about 5 cents US." I don't think that's the definition of Economic Power House.
"I’d be interested in seeing the 'government decided to sit on industries in 1900' thesis fleshed out more."
One way in might be to look at the history of British-owned car manufacturers. The UK went from having the fifth largest car company in the world in 1968, British Leyland, to having no mass production car companies with the collapse of MG Rover in 2005. One of the main reasons for this is the Labor government's strategy of cramming several smaller failing manufacturers into one big company with the primary objective of preserving jobs.
https://en.wikipedia.org/wiki/British_Leyland
Lots of good points already but I think it's worth highlighting how some of them react with each other;
Firstly the 0830 charge to get a doctor's appointment, is that a good thing for productivity to have tens of thousands of people on hold for an hour any given morning and still not get an appointment?
Given that in the UK we have 7 million people on NHS waiting lists how much is early retirement from the workforce due to ill health masking employment figures. People no longer looking for work don't count towards unemployment.
Underemployment is another issue, some households aren't enough hours between two wage earners to get by. This means there are many working poor who are recipients of government welfare typically more associated with those unable to work. Food banks have boomed in the last decade and most recipients are in work.
Housing is a scandal; small by international comparison and poorly built houses which cost 8 or 9 times a median salary in all areas and as much as 15 times in parts of the South East and London. New home building is easily blocked at the local level by existing homeowners.
Some housholds with two graduates from this century can afford housing but typically they already have moved away from where they grew up to a larger city with graduate jobs in only to find after a decade they can't buy property there and then move further out of the urban area and end up facing long and expensive commutes back to where there job is (less so post pandemic in fairness).
Child care is so expensive that having two children in full time, full pay nursery at the same time can be like paying three mortgages each month. Or two mortgages on top of rent which may already be 30-40% of take-home pay. So people are not having children or additional children due to affordability issues.
By my count my wife and I have spent around five years of the median household disposable income on rent and childcare in the decade we've lived together.
The planning system means nothing gets built that could transform an area and provide thousands of new jobs. New runways, airports, train lines, nuclear power stations, reservoirs, solar panel farms, sewers, broadband infrastructure, fracking or on-shore wind - whether you think they would be positive, negative or neutral doesn't matter, none of it gets built. With the exception of one east-west metro line through London which no-one wants to repeat the success of elsewhere.
Add on top of this the fact that mortgages don't run on 10, 20 or 30 year fixed rates and people are anticipating extra payments of potentially £500 a month on mortgages as their fixed terms expire and they move to higher rates not seen since pre GFC- the same as a £10k pa pay cut for a household.
So yes, there's a sense of malaise and decline because on top of all this the Government appear not be interested in Governing. People who didn't want to leave the EU and people who didn't get the type of Brexit they wanted are unhappy, one outcome of that is that the recent crop of government ministers has been beyond appalling. You can't get an NHS dentist, there's rubbish everywhere, teenagers don't have youth programmes to keep them occupied, high streets are dying, the roads are congested, the government has spent billions on a smart motorway programme they seem on the brink of scrapping, threw millions at PPE that didn't work in the pandemic, covered up lockdown breaking parties in the heart of Government, had a PM that lasted less than seven weeks and still managed to contain the death of a well regarded monarch who was seen at least as a fixed point of continuity in people's lives.
Other than that, it's great here!
>So maybe we can summarize Eric’s theory as “The British economy isn’t necessarily worse, but after Brexit, some goods cost more money, so the living standard affordable with the same amount of economic production has gone down.”
Sort of. A more precise formulation would be that the British economy isn't particularly worse in terms of international purchasing power, but is somewhat worse in terms of local purchasing power, with the latter being more indicative of cost of living and quality of life.
>Is this economically possible? Suppose that it costs more for Britain to import goods. Some of those goods will be raw materials, which will hurt industry, which will lower production, which should make market exchange rate GDP look worse. I don’t know enough macroeconomics to be able to tell if this should be happening.
It is economically possible for PPP GDP and market exchange rate GDP to diverge, which is a big part of why both metrics are tracked. In a "spherical horses in simple harmonic motion" world, we'd expect PPP and exchange rates to converge very quickly because differences in prices are arbitrage opportunities. In practice, PPP and market exchange rates tend to tell pretty similar stories for rich countries, but diverge by factors of 2-3x when comparing rich countries to poor countries.
The OECD's price level index (ratio of PPP to market exchange rates) for G7 countries ranges from 82 (Italy) to 125 (USA), and for all 50-ish indexed countries ranges from 37 (Turkey) to 138 (Israel).
https://data.oecd.org/price/price-level-indices.htm
An incomplete list of reasons for PPP and official exchange rates to diverge include:
- Currency controls: the official "market" exchange rate is actually the result of price fixing rather than market forces.
- Trade barriers, both natural (shipping costs, etc) and government-imposed (tariffs, quotas, embargoes, regulatory barriers, etc) preventing price differences from being arbitraged away.
- Differences in prices of stuff that's very hard (e.g. labor) or impossible (e.g. real estate) to import and export in the quantities necessary to arbitrage away price level differences.
Any discussion that doesn’t include the energy and housing situation is incomplete at best. The environmental stuff is way more detrimental than Brexit. But the ruling class in Britain likes that, and hates Brexit, so we don’t get a proper discussion.
An interesting theory explaining why things may feel worse than Econ indicators show: population is significantly undercounted, so per capita metrics are lower in reality than on paper: https://twitter.com/echetus/status/1682676824420253697?s=20
It's because Britain is systematically undercounting third world immigration: their official population is ~65 million, but their true population (estimated by grocery stores, waste management, healthcare utilization, etc) is almost certainly ~75 million. They literally estimate immigration by surveying random people at airports, even though they know that this massively undercounts the results. Of course nominal GDP goes up more than per capita metrics if you do this. And, of course, we all know why the government wants to put out official numbers which underestimate this kind of rampant unskilled immigration.
Things Weren’t Nearly This Bad In The 1970s?
I, an American on a rich Government grant, did my doctoral field work in British schools in the 70s.
The teachers were wonderfully patient and, whenever I would ask a headmaster how I could express my gratitude, she would suggest buying them dinner because, "They rarely eat meat nowadays”.
Are things that bad again?
GDP is not a particularly useful statistic. It's more useful to track the difference between per capita GDP and median income. That's roughly what people use to judge their own economic condition. People feel better when they're both growing at about the same rate. When the median falls behind, they feel cheated, and a lot of people feel cheated these days. This goes for the left and the right. They just blame different parties and offer different solutions.
England is in worse shape than most. It had a colonial empire which has its own resource curse. The money just rolled in, and, even now, London is a financial capital for sheltering gains extracted elsewhere. This has stunted the rest of its economy, and the economic reforms of the 1980s did nothing to improve the situation. Worse, England has a class system. If you didn't go to the right schools, good luck getting capital, good luck building a new industry. England had smart people and a technical lead. You could get some interesting insight by pondering why The City never pumped money into new domestic industries.
Re; disposable income part of the challenge is that there are different real purchasing-power-parity deflators for different purposes.
Back in 2008, most countries had a high price levels for GDP relative to GDP (https://i.imgur.com/5zEyPba.png) compared to the USA (after controlling for the exchange rate), and this was particularly the case for private consumption (https://i.imgur.com/5zEyPba.png).
By 2022, this has reduced markedly (https://i.imgur.com/iJBdMHx.png) for most countries; however less so for the English speaking countries outside the USA, and less for their levels of private consumption (https://i.imgur.com/qHnEXUV.png).
Compare the price level of private consumption in 2008 to 2022 for a basket of countries (https://i.imgur.com/qg8NfkC.png).
The UK also has a particularly high price level for non-discretionary spending, the "Cost of Living", hence the low figure for disposable income.
It's only when you get into the weeds of looking into the price levels of disposable income that you really see UK stagnation relative to OECD comparisons. GDP does tend to look a lot more normal.
And only when you look at this further in the context of an expanding levels of employment in the UK relative to peers that per capita disposable income stagnating means a reducing or at best stationary level of disposable income per worker.
You could alternatively look at consumption levels (rather than prices), and these do a bit better than disposable income growth... But that combines with an increase in household debt that makes them seem less than sustainable.
In general, the Tories have surprisingly actually been relatively successful in what they set out to do, which is that intended to reduce the cost of government and restrain its growth as a share of the economy, and get more people back into the workforce. (The price level of government spending is far lower than when they came to office, and lower than the USA).
But the larger failure is to encourage investment during the period of low interest rates, and to grow the economy per head. Particularly in the North, and areas outside London and the Southeast, whose decline offsets any growth in the SE. Privatization of utilities has generally failed to lead to sustainably competitive prices, and instead of investment, shareholders extract capital from privatized utilities that they purchased at relatively low prices.
The fear is that the opportunity to now increase investment and upgrade the technology base is now gone with the changes in the world interest rate environment, while we're left a nation with relatively high household debts and little ability to stretch further. There is also the fear that the Tories strategy of increasing employment and reducing the cost of government has now run completely into its limits of worsening public services and full employment with no more room to expand the economy that way. The concern is that the UK has become a low wage, high cost, high debt, low investment country and that any attempts to fix this would require major, serious expenditures that will push standards of living down further.
It's immigration.
Britain, partly because of political choices, and partly because it is English speaking, has been a magnet for cheap imported labour since 1997. This has allowed both public and private entities to run down infrastructure for 30 years while maintaining prosperity and what happens when you do that is that suddenly you are just really, really unproductive. Brexit, Ukraine and Covid brought the moment of reckoning forward, but the underlying reality is a country where nothing works because cheap labour has been papering over all the cracks.
It's true that the United States has a lot of immigration, but it also has the global reserve currency, and its overall quality of immigration is much better. The only other western country that has as much as Germany, but that started more recently and, anyway, they are also falling apart.
Big L for rationalist liberaltarian types.
According to a survey of macroeconomists:
> Most panellists think that Brexit remains the primary drag on the UK’s potential output this year. A small fraction cites poor labour force participation as a major constraint. Several panellists suggest public investments and R&D subsidies as a solution to boost UK GDP in the medium term. Most panellists believe a combination of policies would be the most effective way to achieve this objective.
https://cfmsurvey.org/surveys/causes-weak-long-run-uk-growth
Britain is an english speaking country. It collects good stats which are accessible to *anyone* in the world who speaks english. It gets analysed far more than anyone else and people can generally find what they are looking for in the numbers.
It has incredible challenges, not least a dysfunctional housing market, but it is not as crazy/bad as the commentary suggests
The feeling of decline in the UK is only partially captured by GDP figures, as it has a lot to do with the drop in the quality of public services. That said, the Mainly Macro post linked in the first paragraph correctly notes austerity and Brexit as the twin causes for the relative decline in GDP per capita. I would add the importance of financial services to the UK economy. The bubble in financial services in the years preceding the financial crisis inflated UK GDP figures up to 2008 and its collapse contributed to a fall in UK GDP in the period following the financial crisis.
I've tried to look into this issue of Britain's decline here: http://furtheroralternatively.blogspot.com/2023/08/why-i-am-reasonably-bullish-about.html . Sure, the UK could do better, but it's done ok for the last 30 years. There are reasons to be more positive.
Apologies for the thread necromancy, but this seems pretty important: https://news.sky.com/story/the-uk-actually-fared-much-better-after-covid-than-first-thought-heres-why-it-matters-12952220
The ONS (Office for National Statistics) has revised its estimates of the British economy upwards, and it turns out that, far from lagging at the bottom of the G7, the UK has been doing considerably better than Germany, and just a bit worse than France and Italy. Unless those countries also revise their economic estimates upwards, of course, which is perfectly possible.