The Economic History Of The 2010s

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Afternoon all,

Happy new decade. It’s been a bit of a shock returning to work today. The end of slow daytime drinking is tough, but especially when combined with the realisation that our personal (emails), national (rubbish growth) and international (Trump) traumas have crept across the space time continuum into the 2020s.

Of course it’s more complicated than that. Yes the start of the 2020s is far from a fresh start, but it’s really hard to know what this decade will bring. Maybe you’ll get lucky and report back in 2030 that “we found love”. Or maybe not. Maybe a global economic recovery will turn up before a major recession or major war. Or maybe not.

But the economic history business isn’t as tough as the predictions game. So this week we’re scraping back the soil Pompeii-style with a first pass at the economic history of the 2010s. For someone like you, interested enough to subscribe to TOTCs, the danger is we treat things as normal that are anything but. So this five chart history hopefully reminds us quite how exceptional the 2010s were. A decade of economic stagnation and stasis meant slow growth and less economic volatility too. Political volatility more than filled the gap.

There’s a positive case for the 2010s that can be made on a global level, but our national new year’s resolution should be to wake me up from the long stagnation. And if you haven’t sorted your own new year’s resolution yet, don’t worry – you can join the army. Or, for those with a higher risk appetite, Downing Street.

Chief Executive
Resolution Foundation

PS – yes there will be a prize for the first person to identify all ten hits from the 2010s sprinkled through this week’s TOTCs.

Earnings growth is somebody that I used to know
The 2010s defining feature is its earnings catastrophe – the first time in a century that we end a decade with wages no higher than they were at the start of it. What really matters is the lived experience for households – a deep and profound squeeze. It’s not that most people think of their own lives as grim, it’s that things feel harder than we all expected them to be. That feeling is more than justified. Had we continued with the pre-crisis earnings trajectory, workers would be taking home £138 a week more than they are as the 2010s come to a close.The causes are the depth of the recession, including the huge fall in sterling and associated higher inflation that came with it, and the long wait until 2019 for record employment to at last drive decent pay rises (which mean we start this decade in better shape pay growth wise). The impact on those entering the labour market during the crisis is particularly stark, with those in their 30s today earning 7 per cent less than their predecessors were back in 2008. People often ask me why inequality between people and places has risen up the agenda despite not having increased significantly post-crisis – this chart is the answer. Huge gaps between rich and poor may be (wrongly) tolerated in good times, but these have not been good times.
No recession – sorry about the growth
In the long run our pay levels are of course determined by how productive our economy is. And – oh dear. Growth in GDP per capita has been 1.1 per cent – the lowest of any decade since the war, and less than half that seen on average over that period (2.3 per cent). Even this is flattered by many more of us working rather than the post-war norm of us getting better at producing things –  productivity grew by only 0.3 per cent on average through the 2010s.But the last decade was marked by a lack of volatility – our first post-war decade without a recession. Given how damaging recessions are to the economy as a whole and lower income households in particular, this feature shouldn’t go as unnoticed as it does. Yes, growth was slowed by the Euro-crisis and Brexit vote. But the big picture of the 2010s is an unprecedented era of no boom, and no bust
Interest rates stayed as flat as a pancake
You think your meetings are boring? The Bank of England’s Monetary Policy Committee has met 107 times since 2010, and on only three occasions has it actually done anything to interest rates. To repeat a theme: this is not normal (leaving aside the exceptional, for obvious reasons, 1940s). Indeed, nothing happened at all on rates until the Brexit vote prompted a (tiny) rate cut in 2016 from 0.5 to 0.25 per cent.It is of course wrong to say the Bank of England hasn’t done anything. It supported the economy by buying £445 billion in assets (aka QE) and keeping us at near zero interest rates. But the repeated failure of forecast rate rises to materialise shows quite how profound the failure for growth to take off or domestically generated inflation pressures to build has been.
The only thing moving like Jagger was the employment rate
Of course some economic data has moved all over the place during the 2010s. Employment is the stand out case, and in a good way, changing more than three times as much as any shift in the previous four decades. This partly this reflects the starting point of post-crisis elevated unemployment, but employment of around 76 per cent today is a full 3 per cent higher today than it was pre-crisis.Too rarely do we pause to ponder the cause and impact of this huge change. Record employment has closed jobs gaps between places and people, with the employment increase being concentrated among lower income families, those with fewer qualifications and in the lowest employment areas (like South Yorkshire and Merseyside). It has been a decade of falling job inequality.This is a very welcome result, though the cause is less welcome – the earnings stagnation. Households have looked to shield family finances from weak earnings growth by increasing the number of workers or working more hours – 65 million more hours compared to the pre-crisis trend. In short, we’re working more because we feel poor.
The British state has been a yo-yo
The British state has shrunk by almost 7 per cent of GDP over the past decade. Again, this huge change partly reflects the flipside of the surge at the end of the previous decade, caused by falling GDP more than rising spending. But the lack of robust growth in the 2010s has increased both the scale and duration of austerity for public spending – far more so than George Osborne planned back in 2010.The 2020s will not be a period of austerity – the state will be growing not shrinking. But it may well not feel that way, because ending austerity is very different from reversing it. Only a third of the current departmental spending cuts (RDEL per capita) introduced since 2010 have been reversed, and the legacy of austerity still looms over many departments. While health and social care departmental spending next year is 14 per cent higher than in 2009-10, the Justice department’s budget will remain 31 per cent lower than a decade ago. 
The economic history books will rightly devote a lot of time and space to the 2010s. It has been truly awful for wages, but has sparked new record highs on employment. Families have felt unprecedentedly squeezed, amid a recession-free decade.Of course, while convention requires a decade to be ten years, really the 2010s began in 2008. On that basis we can write now what those future history books will say: Britain had the largest financial crisis in its history and then it left the EU. These will probably be the seminal economic events of our lifetimes. It is far less clear what they will say about the next decade. And that speaks to one of the huge advantages the future has over the past, there’s something we can do about it