Economy 2011: a bad news story

By Rachit Buch

Jesse J may have had success with her song Price Tag, but she was wrong: it is about the money, and too many people can’t help but think about the price tag. In fact, 2011 was summed in song form by Aloe Blacc’s I Need a Dollar, released a year ago.

This was the year of doom, gloom and anger. But it wasn’t all bad: inflation, unemployment and debt hit millions, but a fortunate group of hard workers in the UK did quite well as FTSE directors pay went up almost 50%. It turns out that this added to the anger, and exemplified the major theme of the economy this year: 2011 was when inequality hit home. At times, it felt like the newsreel had become stuck on ‘glum, to depressing’. Large, significant, multiple crises afflicted the UK, Europe, the USA and various developed and developing countries.The UK

‘Fragile recovery’ was the phrase du jour in January. The year began with the news that the nascent return to growth had petered out, largely attributed to snow at the turn of the year. The Government’s strategy focussed on cutting the UK’s government debt. This would be done by implementing the wide-ranging central and local government cuts introduced in the 2010 emergency budget, a drive to get the private sector to create jobs and an increase in VAT to 20%.

The problem was that large sections of the public only felt the negative side of the plan. The March budget redoubled Chancellor George Osborne’s efforts at slashing public spending, and a quarter of a million people took to the streets of London to vent their frustration.

A large majority of people supported the Conservatives’ fierce spending plan in 2010 – perhaps when it seemed the effect would be to reign in a bloated state sector. However, the reduction in services, benefits and job losses changed public opinion, as support “plummeted” according to the Financial Times.

And the news kept getting worse. Household budgets were buffeted by rising inflation, which peaked at 5.2% in September. The official budget forecasts suffered cut after cut, to just a 1.1% growth in the whole of 2011, and it was finally admitted in September by the Organisation for Economic Co-operation and Development that the UK faced the possibility of falling back into recession – the dreaded double dip

So who did well in 2011? Well apart from Adele, it seems the FTSE 100 directors had a bumper pay year. Their pay went up an average of 49%. Granted, there is a suggestion that the median increase was not as much as the mean, but most of the country was dealing with a public sector pay freeze, and most in the private and public sector were happy just to keep their jobs.

It seems this provoked a further round of shock and outrage from our political party leaders. The debate about the economy took on the shape of a farcical alphabet soup: Osborne’s Plan A was criticised for failing to grow the economy; Labour and others suggested a Plan B, which was criticised for failing to recognise the perilous state of our finances; some have even proposed a Plan C for investment and growth, which perhaps isn’t yet big enough to have been criticised.

But aside from Project Merlin – a suitably mercurial title it seems – there has been little so far in the way of action to back up all the bluster. May be it will come next year. But our politicians’ response has been dominated by events – largely those from overseas.

Europe

If all of that seemed like bad news, then Europe will seem like worse.

Europe this year was about debt, debt, and more debt. The sovereign debt crisis has mirrored the original banking crisis in 2008. It started out in 2010, seeming to be contained in countries that had simply not played by the rules that had set up the Euro, such as Greece.

It then spread to other countries that were financially one level above. Thus the new species of financial animal were born – the PIGS (Portugal, Ireland, Greece and Spain) joined the BRIC. Later on in 2011, PIGS went through a taxonomic name change and became PIIGS, as Italy became the centre of the problems.

The debt crisis led to summit after summit. Following each one, there would be the moment where leaders waited to see if the markets gave the thumbs up to their deal – like a Roman emperor deciding if a gladiator would live or die. And the emerging plan from the summits were to subject each struggling economy to severe austerity measures. There was no little matter at stake – the fate of the Euro, currency to 17 countries and now the bedrock of the largest single market in the world, hung in the balance.

In Greece, the prime minister Papandreou clung on, then fell off the precipice in November. In Italy, “La Manovra” did to Silvio Berlusconi what countless brushes with the police couldn’t do and toppled his leadership. At the end of the year, Germany and France led a summit to propose the only credible solution to protecting the Euro – fiscal union. David Cameron vetoed the use of a new EU Treaty to bring this about, to withering attack from some sections of the press, and patriotic acclaim from others. It remains to be seen which of the two views are politically and economically more sound in 2012.

The rest of the world

Now for an unjustly brief tour through the rest of the world. The USA has had almost as bad a stream of news as the UK. Unemployment was at record highs for most of the year, and confidence in the economy was still low. There was another moment vindicating the West Wing as a quasi-historical document and teaching tool: the US came within 10 hours of failing to raise its debt ceiling and defaulting on its debt. President Obama has tried to respond to the problems with a ‘jobs bill’ – a stimulus of half a trillion dollars to get the economy going again. But this was met with wall of defiance from Republicans.

Meanwhile, the BRICS have had a mixed time in 2011. Most have assessed the emerging group as witholding the global faltering, as China became the second biggest economy in the world, but they have struggled to keep up the pace of their rapid growth. The level of economic analysis may also have suffered this year, as amongst the best and most incisive comment on the Chinese economy came from bears.

Inequality gets serious

It has undoubtedly been a tough year. A struggling world economy has been warned of a 1930s-style depression, not by the gibbering man in a tin hat at the local bus station, but  by the head of the International Monetary Fund. But this year may be seen as the time when more people became worried about the steep inequality in incomes and wealth than before.

Inequality is not a new concern. It certainly is not a new phenomenon. But it has taken on new sharpness in this prolonged time of struggle. It seems people are happy to see wealth in society – we are in a market economy after all, and don’t want to see incomes controlled by a group of people, as that way trouble lies. It also seems that people will take a hit of bad news so long as long-term prospects seem good. But concerns arise when it seems like prolonged, repeated trouble for most and success for some.

At this point, many ask whether the interests of the majority are being protected, compared with the interests of the minority. The Occupy movement has summed this up by pitting “the 99%” against “the 1%”. The stats are worrying, and this could be the phrase that sums up the year’s economic events.

The movement has had a political effect. President Obama has already aligned himself somewhat to Occupy’s goals – a bold move considering this is a protest that performed a sit-in protest at the main financial street in America.

In the UK, even the Conservative party, which is leading a programme of harsh spending cuts, says that it has the interests of the majority at heart and wants to bring the excesses of the City to an end. Whether this has any long-term effect is of course still to be seen. There is a palpable sense of injustice,  but the means to effect change seem to be vanishingly small.

In all, this has been a troubled year. We do not know if things will improve next year or if we’ll have to wait for a prolonged recovery. We don’t know whether the Euro will survive next year, whether widespread austerity will boost the UK economy or indeed whether we will be settling into a global depression in 2012. In the search for a song to sum up next year’s economic travails, it doesn’t seem that we’ll be striking on a happy tune just yet.

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