On the off chance that none of you have been following twitter recently, there has been something of a running disagreement (not quite a spat, but certainly not a friendly discussion) between two former members of the Bank of England’s Monetary Policy Committee (the group of learned people that, among other things, set the Bank of England’s base rate). Specifically, Danny Blanchflower and Andrew Sentance have been airing their widely different opinions regarding the state of the UK economy, and its recovery (or lack thereof) since 2008/2009. (See, for example, Blanchflower’s tweet in response to Sentance – there are plenty of others, although they do verge on the childish at times.)
By way of background, it’s helpful to note that during their time on the MPC, Blanchflower was noted as an inflation “dove” (i.e. someone who is not overly concerned with inflation as long as it was at extreme levels), whereas Sentance was one of the most “hawkish” (the opposite of a dove – i.e. someone who is concerned about inflation as (practically) the be-all-and-end-all) members.
This difference of opinion regarding the importance of inflation seems to have spilled over into their interpretation of the UK economy’s performance since 2008/2009. Blanchflower views the UK’s “recovery” since 2008/2009 as pitiful, and makes the (valid) point that it has taken over 60 months for the UK to return to its pre-2008 GDP level. Indeed, he uses the graph below to indicate that it has been the lengthiest recovery for over 100 years – each line represents the progression of GDP during each recession and recovery since 1920. The line representing the 2008-2013 recovery takes almost 12 months more than the next lengthiest recovery (1973-1976) to return to pre-recession levels, appearing to support Blanchflower’s claim. (In fact, Blanchflower makes the claim that it has been the lengthiest recovery for over 300 years, although the data to substantiate this claim have not yet been presented).
The picture is even more striking when looking at GDP per capita. Due to increases in population over time, the length of a recovery in terms of GDP per capita is increased relative to looking at GDP on its own. The graph below shows the difference between GDP per capita and its peak for each of the fours most recent recessions that were presented in the previous above. Due to limitations in the data available from the ONS, the series in the graph below are calculated using the ONS’ quarterly GDP data and their annual population data (assuming that quarterly population changes within a year are minimal).
Nonetheless, the implications of the graph are clear – it took even longer for GDP per capita to return to its pre-2008 level than was the case for just GDP: 7 years for GDP per capita versus about 5 a bit years for GDP on its own. Moreover, the difference between the current recovery and the next most lengthy is 13 quarters – i.e. just over 3 years.
So, then, it appears as though Blanchflower is correct in terms of the length of the recovery. It is difficult to see how Sentance can disagree with Blanchflower on this issue.
Another matter is the reason for the lengthy recovery, but that’s for another blog post!