I’m me, but I’m also a fraction of a cohort. The word always makes me thinks of the Visigoths sacking Rome, but we’re more likely to be looking for jobs at Caffe Nero. The Great Recession has cost us a lot in terms of lost current GDP, but it casts a much longer shadow one which will blight people my age for the rest of our lives.
Simon Wren-Lewis points me to a Vox article which tries to quantify the cost of austerity in terms of lost GDP, 3% of GDP. Although this is couched in caveats it is close to Simon’s own calculations that austerity has led to GDP being 2% lower today. This implies an average cost per UK household of £3,500 over three years (that’s £93bn so far).
I’m less confident that austerity is the culprit here. Incompetence and ignorance at the Bank of England is far more likely to blame. Either way, the failure to get the economy working again is an ongoing tragedy of almost inconceivable awfulness. Simon concludes:
Although all governments like to give the impression that they can have a big impact on people’s prosperity, few actually do. These numbers suggest that the current UK government has managed to do so, but unfortunately by making us all poorer.
Quantifying things is good. Turning those figures into graphs is better because I’m a visual thinker. But I still think Simon does a disservice in lowballing the harm that this mini depression is doing. Sadly these harms aren’t chronic, they’re acute. They’re hitting the young and the unemployed and that needs emphasising.
I’ll outsource my take on unemployment to Chris. In utilitarian terms is George Osborne worse than the UK’s worse serial killer? Answers on a postcard.
I want to concentrate on me (young people today are so narcissistic…) because I’ve written about this before. There aren’t just current costs to a depression: they scar people. The term for this is hysteresis. This refers to the damage done to people forced to stay out, or delay entering, the labour force.
Two years ago, I wrote a response to the question “what good is macroeconomics?” Roughly $100,000 is the answer. A one percentage increase in the unemployment decreases initial wages and worsens job match. Your job sucks and you’re in the wrong one. This has effects for the rest of your life, $100,000 of effects.
Now we run the numbers for the UK.
Pessimistically, we’ll assume that the new natural rate of unemployment is 6.5%. That there has been some long standing damage done to the UK economy. Heroically, we’ll assume we’ll get unemployment down from almost 8% now by the next election. Dating austerity to mid-2010, that means that we’ll have had half of 2010 with 8% unemployment, the whole of 2011, 2012, and 2013 too, maybe 7% in 2014, and a drop to 6.5% by May 2015.
Across those five years we’ll have 4.3 million people turn 21. If a 1% elevation in unemployment imposes a lifetime cost of $100,000, for simplicity I’ll assume that unemployment at 1.5% imposes a lifetime cost of $150,000. That’s probably overly pessimistic, but it makes the maths easier.
We multiply out the elevated unemployment rate, the adjusted lifetime cost and the 800,000 or so 21 year olds coming of age in each year and voila. Austerity is imposing £555,817,500,000 lifetime cost on the young of this country. That’s over half a trillion dollars! I had to double check the numbers but, yup, that seems about right to me across the lifetime of a whole cohort.
It represents half a trillion dollars of ideas which people never had, of coffees never made, of children never taught, of diseases not cured and houses not built. This colossal heap of lost human creativity and perspiration is the real cost of the Great Recession.
 A link to a part of the ONS website which is actually useful and user friendly! Surely this is a time of miracles.