Tuesday, 26 January 2010

Double Dip Recession And Steady State Economics

The UK economy may have emerged from recession, but there is still a risk of a double-dip, according to accountants KPMG. Its Britain's deepest recession since the 1930s, and the economy only managed to expand by a much weaker-than-expected 0.1%.

The keenly awaited figure compared with the average City forecast of 0.4% expansion. It brings to an end six consecutive quarters of contraction, which saw the economy shrink by about 6%, or 10% compared with where it would now have been had the slump not occurred.

One of the sectors that helped the most in the car industry, but the scrappage scheme is not doing that well. The UK car scrappage scheme could not prevent 2009 being the worst year for the motor industry in 14 years. The Society of Motor Manufacturers and Traders (SMMT) reported that 150,936 new cars were registered in December, 38.9% more than a year ago. Just over 20% of the sales were to consumers who received a £2,000 subsidy by trading in their old vehicle. So this expansion is a flimsy one, but it may be enough for Gordon to risk it with an snap election. Especially if he thinks things will soon get worse, if the country dips back into recession. The famous double dip recession.

However Economic growth is an increase in the production and consumption of goods and services. It entails increasing population and/or per capita consumption. It is indicated by increasing gross domestic product (GDP). Economic growth literally refers to an economy that is getting bigger, not necessarily one that is getting better. So economic growth a threat to the environment.

The economy is a subset of the ecosystems that contain it. This fact is overlooked in business and economics textbooks, where the ecosystem is viewed as a subsystem of the economy, and the economy itself is portrayed as a circular flow of money between firms and households. The production of goods and services entails the conversion of natural resources into consumer goods and manufactured capital. This explains why there is a fundamental conflict between economic growth and conservation of natural resources. Growing the economy means shrinking the ecosystem. The degradation of the environment as a result of economic growth occurs in many ways, but in general, economic growth leaves a larger ecological footprint.


howard thomas said...

Double dip recession.......just ask yourself what will happen when the next government (of whatever colour) has to tailor its spending to be much more in line with its income!

Ed said...

Economic growth is vital as without it the economy stagnates, people lose their jobs, tax reciepts go down, unemployment spending goes up, and that's the end of spending on undeniably "good" things like education, health etc. Money has to come from somewhere and simply wishing to bring about some bucholic dream of green fields and happy peasants doesn't answer the real problem of where the money to run a modern country comes from if we're all scraping about growing potatoes.

Adrian Windisch said...

I suggest you read a bit more about steady state economics, such as the links I provided.

You may have missed the point about limited resources. How will future generations grow the economy when there is no fuel/land/resources.

Another thing is how GDP is counted. Every disaster is measured as growth. http://dieoff.org/page11.htm
Can that be right?

It would do you good to grow some vegetables.

Ed said...

I have read the links now. Interesting, but I struggle to see how, in the end, the implementation of a "steady state" economy will end up markedly different from that of a command economy.

Obviously, I think it unlikely that we are going to end up agreeing on this subject but thanks for you suggestion re. growing some veg.


Adrian Windisch said...

Cheers Ed, though growing potatoes was your suggestion.

The steady state economy would be very different, resources would be valuable so nothing would be wasted.