IN THE holiday spirit, I’ve decided to run a quiz at the end of this column. I’m offering a bottle of champagne to the winner, and I’ll make the draw from correct entries on 31 December.
A quiz about the economy is appropriate because there are so many puzzles about the subject. In the current festive season, many are having difficulty predicting the outcome of the fiscal cliff in the US. But at least we can understand what has been going on in the American economy. Output flattened and began to fall during the summer of 2008. Just over a year later, it began to recover, and is now higher than before the recession. America’s fall in employment started later and didn’t end until February 2010. Some 5m net jobs have been created since then, although employment levels are still below their previous peak.
These patterns are reassuring to economists. This is how the world should be. Employment changes lag behind changes in GDP, as they have done since time immemorial. There are good reasons for this – when a recession starts, firms might not believe how bad it is going to be. Getting rid of experienced staff and having to hire new ones once the slump ends is expensive and disruptive. So people are kept on. There is also a credibility problem once the economy picks up, so staff levels are not immediately rebuilt.
The puzzle in the UK is well-known. Employment has reached record highs. Separate confirmation of the buoyancy of the labour market has been provided by falls in unemployment. Yet the Office for National Statistics says that output has been flat.
So are we still in recession? Stephen Potter, the great British humorist of the 1950s, had a marvellous phrase which gives the appearance of expertise in almost any context: “Yes, but not in the South”. This seems spot on. Britain’s regional divide appears to have widened markedly. GDP figures will likely eventually be revised upwards, but the regional split is another candidate to explain the output and employment puzzle. During 2013, it will become more and more apparent, in the areas where City A.M. is read, that the recession is well and truly over.
So for some seasonal nostalgia, the subject of this quiz is recessions. A recession is defined here as being a year in which real GDP growth is less than zero. I am a fan of economic history, which should be compulsory for all economics students, so the quiz spans the period since 1900, and covers all developed economies.
We think we may have had it bad over the last few years, but to start: what, where and when was the biggest cumulative fall in real GDP in peace time in any of these countries? Keeping the negative tone, what, where and when was the biggest fall in GDP in any single year? Finally, to end on an appropriately optimistic note, what, where and when was the biggest gap between recessions? A prosperous New Year to all.
Paul Ormerod is an economist at Volterra Partners, a director of the think-tank Synthesis and author of Positive Linking: How Networks Can Revolutionise the World (Faber & Faber).
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