Home > Economics > Yet more on the UK

Yet more on the UK

Steve Waldman (of the indispensable Interfluidity blog) has answered my plea for an explanation of the UK’s economic woes, offering a ‘Post-Keynesian’ description of the crisis. I highly recommend you go and read the whole thing before reading the rest of this post.

I am not convinced by the Post-Keynesian story. Waldman discussed the fact that the UK has not stabilised the path of nominal income, and this is true. However, here is a comparison of Nominal GDP for the UK and the USA:

Now, it is true that debt levels are much higher here, but (at least according to the recent ‘Debt and Deleveraging’ report from the McKinsey Global Institute) the country currently undergoing deleveraging is the US:

I grant that if the Post-Keynesian story is correct, it seems plausible we should expect the country with the higher debt to have larger (real) problems given equal deviation from the trend in nominal income. The flip side of this (as we are holding NGDP constant) is that inflation must be higher. But I’m not sure how to tie this whole story together with the fact that the US is deleveraging and we, apparently, have not even started (as of Q2 2011). So, you can colour me confused on this one.

I really hope Waldman is wrong, because I put the probability of nominal income returning to trend as basically zero. NGDP-level targeting may make for economic equilibrium, but I seriously doubt that it is a political one too.

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Categories: Economics
  1. Alex
    April 28, 2012 at 9:39 pm | #1

    The McKinsey graph is not useful. It includes (from note 1) household, corporate, finance and government debt (as a percentage of GDP). AFAICT, the only way to deleverage all that in total is through growth or an export boom. The US has growth, UK doesn’t.

    Government debt (and perhaps financial) needs to be stripped out because Waldman’s point is that deleveraging needs to take place in the private sector. Government borrowing will have increased because of automatic stabilisers.

  2. April 29, 2012 at 12:40 am | #2

    It has to be a growth and debt story. Australia is in a very different situation despite being in an apparently similar debt place to other countries.

  1. April 28, 2012 at 7:18 pm | #1
  2. May 1, 2012 at 7:02 pm | #2
  3. May 6, 2012 at 1:45 am | #3
  4. June 8, 2012 at 9:16 pm | #4

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