UK economy – Keynesianism and the economic downturn
Monday, 27 July 2009 14:40

The following article is an edited presentation made by John Ross of Prince2 training courses at the "Progressive London" conference on 11 July 2009. As noted in the article it was made before the publication of the UK 2nd quarter 2009 GDP figures. Rather than rewrite the article the analysis has however been left as it stood on 11 July and subsequent developements are dealt with in the notes.


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There is a systematic attempt to present the situation of the UK economy as one of ‘green shoots’. If that means anything it suggests, figuratively, that there will be a significant/substantial UK economic recovery in the near future.

Such a perspective, as will be seen, is wrong. It is based on only one serious statistic - that the very rapid decline in share prices has halted and some recovery in this field has occurred. The perspective of substantial UK economic recovery in any near term period is not justified by consideration of the actual overall indicators of the UK economy.  [Note – this presentation was given before the publication of the 2nd quarter UK GDP figures on 24 July. These showed the decline in output in that quarter at 0.8%, or an annualised rate of 3.2% - twice as bad as media projections. This evidently confirms the analysis made below].

As UK share prices, i.e. the FTSE, invariably follows US share markets, which are in any case far larger and more important than those in the UK, Figure 1 shows the movement of the Dow Jones Industrial Average in the present economic downturn compared to that in 1929. This graph measures, by the number of trading days since the previous hight point of the cycle, the decline of the Dow Jones Average after its peaks in 1929 and 2007. 

Figure 1


09 07 24 Dow Jones 1929 2007  

The pattern shown is clear. From 9 October 2007 until 9 March 2009, that is for 358 trading days after its peak level, the fall of the Dow Jones Industrial Average tracked the decline starting in 1929 - apart from 1929 there has been no comparable decline in US share prices so these are unique and comparable events. This fall culminated in a decline of 54% from Dow's peak level. Since then the Dow has moved upwards although it is still well over 35% below its peak.