Eurozone ‘depression’ possible – Treasury
The head of Treasury, the Government’s chief economic adviser has gone where few others dare to venture. He used the word depression to describe how bad Europe’s economic woes could become. A depression is a far more alarming, and longer lasting crisis, than just a recession. …
Unlike a short recession, a depression is a sustained period of downturn, with huge job losses, a shortage of credit, and less trade with countries defaulting. And all that is already happening in Europe.
But late today Mr Makhlouf backed away from his comments, saying he never meant depression with a capital D, he says he meant it with a small d and that the worst case is a slowdown in world trade and slower economic activity.
Sounds like Mr Makhlouf got an irate call from someone, but calling it depression with a small “d” isn’t going to make any difference. The world economy is in turmoil, and likely to get worse. The effects are going to last for the foreseeable future:
And Mr Makhlouf said the fallout from Europe will affect us all for up to 10 years. The most depressing feature of the current crisis is that we have entered a world where the uncertainty and fragility of the world economy will carry on for 5 to 10 years.
Finance Minister Bill English said later we could be in for 15 years of grumpy growth
“Grumpy growth” sounds like fun doesn’t it. And fifteen years is effectively forever as far as economic prediction goes.
In 1989 Francis Fukuyama wrote an essay called “The End of History”. It attracted a lot of attention, it was widely (and correctly) condemned as simplistic and wrong. None the less, I’m happy to brave the comparison, and suggest that we’re looking at the end of growth. “Growth” in the narrow, economic, “increase in GDP” sense that is.
Something between five and fifteen years of purely economic turmoil. During that time, as peak oil (and increasing consumption in China and India) kicks in, the price of oil / petrol is predicted to more than double, so that “Petrol pain to get so bad you’ll be forced to change your ways”. That will really put the brakes on. The price of oil affects the price of everything else, and as it rises so economic activity decreases. Looking further out, it will take decades to transition to non-fossil energy sources, by which time the challenges associated with rapid climate change should be really kicking in.
I’m not saying that there won’t be growth again, just that we may not, in the foreseeable future, experience such a time as the decade of sustained, significant growth that we experienced up to 2008. That isn’t bad news. It’s only bad news if we’re addicted to a profligate lifestyle of ever-increasing consumption, an unsustainable path which inevitably ends in a crash. We’ve got to give up that lifestyle anyway, and an end to growth is going to force us to do so. We’ve got to transition to a sustainable, “steady state” economy, and if we move to a more equitable distribution of wealth that can still mean improvements in “lifestyle” for the majority. We’ve got to redefine success based on new measures like the GPI (instead of GDP). And we’ve got to start the transition now.
For “Western” / OECD countries it’s time to start creating a world based on a different kind of growth.