2020s >> 2020 >> no-1395-november-2020

Cooking the Books I: The really big slump

We know that capitalist production moves in ever-repeating cycles of boom and slump and that governments can do nothing to prevent this. But they can produce a slump, either unintentionally through a mistaken policy or deliberately. The present slump is an example in that it has been largely government-induced rather than resulting from the normal workings of capitalism.

The lockdown imposed by the government at the end of March and maintained for the next three months led, according to the Office for National Statistics (ONS) at the end of September, to a fall in GDP during those three months of 19.8 percent, which they described as ‘the largest quarterly contraction in the UK economy since quarterly records began in 1955’.

This was a much higher fall than in many other countries:
‘Revised figures yesterday from Germany showed that its GDP fell by 9.7 per cent, less than half the UK’s decline, while the eurozone and European Union
falls were 12.1 per cent and 11.9 per cent respectively … The United States recorded a similar drop to Germany, just under 10 per cent’ (David Smith, Times, 26 August).

Why this difference? Was the government-induced slump in Britain really twice as deep as in Germany and the US? If so, why? It turns out that it was mainly due to the different way that the ONS statisticians calculated the fall compared with those in other countries.

GDP is measured in various ways, one of which is to add up what persons spend, what businesses invest and what the government spends. With only key
workers, as in the health service and food distribution, allowed to go to work during the period and the income of some 9.4 million reduced to 80 percent of their previous earnings, private consumption fell by 23.1 percent, manufacturing production by 16.9 percent and business investment by 31.4 percent. Government spending, on the other hand, went up by 14.1 percent. Calculating GDP in this way gave a fall of 14.5 percent.

This way of calculating the fall didn’t satisfy the ONS as, while the government spent more, it did not provide the same level of ‘service’. In calculating GDP, the government is regarded as providing various services – education, health care, ‘defence’, ‘justice’, administration,etc – which have to be priced.

Normally this is simply the amount of money the government spends on them. During the lockout, however, although the government spent the same amount on education, because schools were closed it didn’t provide the same level of ‘service’; similarly with normal NHS services.

Taking this into account, the ONS reduced government ‘output’, so increasing the fall in GDP from 14.5 to 19.8 percent. Other countries didn’t do this.

We don’t want to get involved in the arguments amongst statisticians as to the best way to calculate GDP except to point out that the concept of government ‘output’ is rather dubious. Governments as such produce nothing; everything they spend derives ultimately from surplus value produced in the profit-making sector of the economy and is obtained by them either through taxation or by borrowing.

So all its spending is as much a ‘transfer payment’ as are benefits and pensions.

In any event, whether the fall – the plunge, in fact – in GDP over the three months was 19.8 or 14.5 percent it was much more than in any slump caused by
the normal workings of capitalism. In the previous biggest slump since accurate records began, the one that followed the Crash of 2008, GDP fell by only 4.6 percent and that over a period of 16 months.

Socialist Standard November 2020

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