Cooking the Books 2: No growth area
On Wednesday 22 April, Alistair Darling, the Chancellor of the Exchequer, took his snout out of the trough for a while to deliver the budget speech. He ended it with what he must have thought was a brilliant soundbite:
“You can grow your way out of a recession. You cannot cut your way out”.
Well, er, yes. A recession is a period when there is no growth, when in fact there is a fall in production, what the spin-doctors called “negative growth”. So, obviously, a recession comes to an end when growth resumes. The big question is: can a government do anything to make this happen?
But what is “growth” anyway? For government statisticians it is an increase in the Gross Domestic Product. GDP is made up of what capitalist firms invest + what consumers spend + what the government spends. For Marxists, the key part of this is capital accumulation, the part of profits that capitalist firms re-invest in production, the motor of the capitalist economy and which determines the level of consumer spending.
While governments can influence GDP – if only by increasing their own expenditure – they cannot do anything to increase capital accumulation. That depends on the amount of profits that capitalist firms expect to make, which in turn depends on market conditions, which governments can’t control.
An increase in GDP brought about by an increase in government spending – which is the government’s plan to get out of what Darling delicately calls “the recession” – can only come in the long run out of profits, the source of funds for capital accumulation. In the short run it’s only a statistical illusion. It doesn’t increase capital accumulation and so doesn’t result in growth in actual production..
Even here, though, Darling is not expecting GDP to go up until some time towards the end of next year. In the meantime, he estimated, GDP would have fallen by 3.5 percent. Not everybody agrees on this figure. In its latest quarterly Inflation Report published in May, the Bank of England “now expects that this year’s slump will lead the economy to shrink by up to 4.5 per cent on its main view, marking the most brutal drop in GDP since 1946” (Times, 14 May). The 1946 drop was caused, it should be noted, not by an economic crisis, not by any actual fall in production, but simply by the government no longer having to spend money on fighting a war. Three monthly earlier, however, the Bank had been ever more optimistic than Darling, expecting a fall of only 3 percent.
Basically, they don’t know. As Mervyn King, the Bank’s Governor, put it:
“We may well get a recovery that proves to be sustained, then again, we may not” (Times, 14 May).
True. And how very profound.