The Cooking the Books Column from the September 2014 issue of the Socialist Standard
When at the end of July the official figures for the UK Gross Domestic Product in the second quarter of 2014 were announced - an increase of 0.8 percent, which brought GDP back to the level it had been before the slump started in 2008 –the politicians and media who support the government were jubilant. The crisis is over, they proclaimed. Others were more circumspect about what this meant or, rather, did not mean. Anthony Hilton, Economics Editor of the London Evening Standard, even wrote that ‘the next set of output figures should top pre-recession levels –but it is good news only for a privileged few’ as ‘we now live in an economy where the rewards from growth or globalisation go to an ever narrower elite’ (24 July).
The figures certainly meant that production had reached its pre-slump level but this did not mean that the crisis was over for most people in the sense that their standard of living was back to what it was in 2008. GDP had reached its pre-slump level but GDP per person had not. This was because the population has also increased since 2008. GDP per person is not expected to reach its pre-slump level for another three years.
GDP per person is not really a measure of standard of living as it says nothing about how what has been produced is distributed. The figure would be the same whether everybody was getting an equal share or whether a few were getting a very large share with the rest below the average. Or anything in between. As Hilton pointed out:
‘Total output matters but what matters more in terms of individual wellbeing is how the output is spread around. It does not matter how big the cake has grown if you only qualify for a small slice –or possibly something even smaller –than you did a few years ago. Sadly, an ever smaller slice is the reality for most people these days.’
This was confirmed by an article in the Times (16 July) by Ed Conway, Sky News Economics Editor, headed ‘Feeling worse off is the new reality and workers should get used to it’ which started:
‘Were you in any doubt about the scale of the depression Britain is now emerging from, consider the following: real wages, adjusted for inflation, have fallen more in the past five years than in any comparable period in a century and a half. Not since 1864, when vaguely reliable data began, have our living standards been squeezed so much … [N]ever before has there been a five-year period with as sustained, significant and sizeable fall in family earnings as the one now coming to an end. Between 2009 and 2013 real wages dropped by 8 per cent.’
Real wages (what take-home pay will buy) is a better measure of individuals’ standard of living than GDP per person. If the slump in production is over, as it appears to be, real wages will begin to rise again but, according to Conway, at a much slower rate than before. He suggested about 1 percent a year. In that case it could take another seven or eight years for people’s standard of living to reach its pre-slump level. Meanwhile the rich get even richer.