Sub-normal Prosperity

How does one describe an economy betwixt and between boom and slump – the state of much of the world today? Growth is too low, unemployment is too high, but the economy is not actually contracting, but bouncing along somewhere near zero growth, with bursts of low growth interspersed with plunges into negative territory. Keynes talked about ‘long dragging conditions of semi-slump, or at least sub-normal prosperity’; another phrase he used was ‘chronic invalidism’. In these ways he tried to denote a condition in which there was no tendency to become either much healthier or much sicker. Technically, this was his state of ‘under-employment equilibrium’.

The World’s Opinion Page

Help support Project Syndicate’s mission

subscribe now

We’re always trying to detect trends: any quarter’s major indicator is extrapolated into a trend, favourable or unfavourable. The international organisations do this the whole time, which is why their macroeconomic growth forecasts are revised each quarter. But suppose there is no trend, just an oscillation, with brief spurts of growth followed by collapses?

This brings me to the real point: to be able confidently to predict a trend one has to have a reason for doing so other than the numbers themselves. For a positive or negative indicator may tell you nothing more than there has been some positive or negative bit of noise which has temporarily lifted or depressed animal spirits. Thus the UK’s burst of growth in Q3 2012 seems to have been due to the temporary boost of the Olympics. But analysts who should have known better thought that it marked the start of the recovery; the next quarter was negative again.

So when people tell me that we have ‘turned the corner,’ I want to know why they think so. At present I don’t see any convincing reason to believe this. UK GDP per capita is 6% lower than its pre-crisis peak. Average real incomes have been falling for the past five years. In the UK the fall has been the largest among advanced economies. These incomes provide the markets for goods and services. So where is the growth coming from?;
  1. Television sets showing a news report on Xi Jinping's speech Anthony Wallace/Getty Images

    Empowering China’s New Miracle Workers

    China’s success in the next five years will depend largely on how well the government manages the tensions underlying its complex agenda. In particular, China’s leaders will need to balance a muscular Communist Party, setting standards and protecting the public interest, with an empowered market, driving the economy into the future.

  2. United States Supreme Court Hisham Ibrahim/Getty Images

    The Sovereignty that Really Matters

    The preference of some countries to isolate themselves within their borders is anachronistic and self-defeating, but it would be a serious mistake for others, fearing contagion, to respond by imposing strict isolation. Even in states that have succumbed to reductionist discourses, much of the population has not.

  3.  The price of Euro and US dollars Daniel Leal Olivas/Getty Images

    Resurrecting Creditor Adjustment

    When the Bretton Woods Agreement was hashed out in 1944, it was agreed that countries with current-account deficits should be able to limit temporarily purchases of goods from countries running surpluses. In the ensuing 73 years, the so-called "scarce-currency clause" has been largely forgotten; but it may be time to bring it back.

  4. Leaders of the Russian Revolution in Red Square Keystone France/Getty Images

    Trump’s Republican Collaborators

    Republican leaders have a choice: they can either continue to collaborate with President Donald Trump, thereby courting disaster, or they can renounce him, finally putting their country’s democracy ahead of loyalty to their party tribe. They are hardly the first politicians to face such a decision.

  5. Angela Merkel, Theresa May and Emmanuel Macron John Thys/Getty Images

    How Money Could Unblock the Brexit Talks

    With talks on the UK's withdrawal from the EU stalled, negotiators should shift to the temporary “transition” Prime Minister Theresa May officially requested last month. Above all, the negotiators should focus immediately on the British budget contributions that will be required to make an orderly transition possible.

  6. Ksenia Sobchak Mladlen Antonov/Getty Images

    Is Vladimir Putin Losing His Grip?

    In recent decades, as President Vladimir Putin has entrenched his authority, Russia has seemed to be moving backward socially and economically. But while the Kremlin knows that it must reverse this trajectory, genuine reform would be incompatible with the kleptocratic character of Putin’s regime.

  7. Right-wing parties hold conference Thomas Lohnes/Getty Images

    Rage Against the Elites

    • With the advantage of hindsight, four recent books bring to bear diverse perspectives on the West’s current populist moment. 
    • Taken together, they help us to understand what that moment is and how it arrived, while reminding us that history is contingent, not inevitable

    Global Bookmark

    Distinguished thinkers review the world’s most important new books on politics, economics, and international affairs.

  8. Treasury Secretary Steven Mnuchin Bill Clark/Getty Images

    Don’t Bank on Bankruptcy for Banks

    As a part of their efforts to roll back the 2010 Dodd-Frank Act, congressional Republicans have approved a measure that would have courts, rather than regulators, oversee megabank bankruptcies. It is now up to the Trump administration to decide if it wants to set the stage for a repeat of the Lehman Brothers collapse in 2008.