Headlines You Won’t Read Today: “GDP Growth Driven by Expectation of GDP Growth”
There are few things I hate more than reading headlines saying “GDP growth driven by X” – especially where X is usually something deemed “bad” like “consumer spending”, or “household debt”, or “rising house prices”. There is much fallacious thinking packed into these headlines, and it usually plays out in the articles. “Rising spending leads to rising incomes”, “rising incomes lead to rising spending”, “rising employment leads to rising demand”, “consumers can’t spend more with real wages falling”, and so on, and so on.
All these phrases want to take the macro out of macro; incomes rise then spending rises, or vice versa. In aggregate, spending and incomes are always equal by definition at every point in time because “spending” and “income” are just two different ways to record the exchange of goods and services for money.
What really “causes” rising aggregate spending (income)? Well, of course, the expectation that aggregate spending (income) will rise. Expectations above all else… house rules.
Anyway, my point is, Larry Elliot is very confused:
Fears that Britain’s consumer-led recovery is losing momentum are increasing amid signs that the rising cost of living is hitting confidence and high-street spending.
There is no more a “consumer-led recovery” than there is an “household income-led recovery”. Expectations of income (spending) went up and hence income (spending) went up. Forget about the grossly deceptive partitioning. And do you think the falling cost of living is raising confidence in Spain or Greece, Larry? Maybe UK macro policy is just not tight enough for the Guardian econ editor, who is still addicted to the opium marketed as “price stability”?
So here is some “cheerleader for growth blogging” as a counterpoint to media doom and gloom: the EC’s Economic Sentiment Indicator update for November was published today, and it is says UK “confidence” is up slightly on October and still up in “boom” territory.