It’s economic productivity, stupid

“It’s the economy, stupid” was a phrase originally coined by James Carville, when he was working for Bill Clinton’s campaign in his successful pursuit of the presidency in 1992.

At the time, the US was experiencing a recession and the incumbent president, George HW Bush, was perceived as somewhat out of touch with the needs of ordinary Americans. Carville told campaign staffers to emphasise the importance of the economy at every opportunity, and even went as far as hanging a sign in campaign headquarters reading “It’s the economy, stupid.”

The phrase became a key part of the Clinton campaign and, since then, it’s become common parlance among political analysts and commentators in the UK and the US.

Fast forward thirty years and it seems the UK and much of the wider West have lost sight of the bigger picture and could use some of Carville’s clarity and simplicity.

Understandably, there is a lot of focus on inflation at this present moment in time; but looking at the two previous decades and likely the two decades to come, there is a greater economic malaise afflicting all corners of everyday life.

In the domestic news cycle of the last two weeks there have been stories cropping up on a plethora of problems arising in areas as diverse as:

• The declining quality and failings of public healthcare (e.g. A&E wait times, NHS waiting lists & an inability to access basic healthcare such as GP & dental appointments)
• The inadequacy of our transport infrastructure and the costly & delayed projects designed to improve it (e.g. Crossrail & High Speed 2)
• Defence spending and the declining size of the military (particularly in the context of war in Ukraine)
• Backlogs in the legal system and an inability to process basic documents like passports & visas in an acceptable time period
• Questions over our ability to fulfil promises made to future generations — be it maintaining the state pension in the UK or entitlements in the US

And all of this comes at a time with near record high levels of taxation (as a percentage of GDP), high debt to GDP ratios, large government budget deficits and interest rates which remain exceptionally low on a historical basis.

Indeed, the UK tax burden is forecast to soon rise to its highest level since Prime Minister Harold Wilson left office in 1970:

The focus of the news cycle is on immediate issues that have an impact on people’s everyday lives. However, these problems are all ultimately symptoms of the overriding disease — namely our anaemic rates of economic growth. More importantly, where is the economic growth per capita (i.e. productivity growth) that would lead to meaningful improvements in average living standards?

The truth is that the pie is no longer growing at the rate that it once did. The economies of the UK and European Union have completely lost any meaningful momentum since the 2007/08 financial crisis which is now more than a decade in the rear view mirror.

If the size of the pie is fixed, people will spend more time fighting over how to divide it — thus the high levels of political division, bitter partisan fighting and culture wars raging on both sides of the Atlantic.

More GDP per capita means more resources for healthcare and basic public services, more investment in transport infrastructure, more scope to lower the tax burden on businesses and households. It also means smaller budget deficits and government debt to GDP ratios increasing the amount of firepower available for any future crises.

Average life expectancies have gone up faster than the retirement age. Residents of developed economies across the world are having less children than they used to leading to impending population decline, unless there are significantly higher levels of immigration. If you want to see where we are headed then simply take a look at Japan, where the population has shrunk by 644,000 people in just the last twelve months. Dependency ratios are thus set to increase, exacerbating many of the domestic problems arising from our weak economic condition.

And yet politicians almost seem to have stopped talking about economic growth as a concept. It’s as if they think that by no longer mentioning the biggest issue facing the country it will simply go away all on its own.

Nobel prize winner in economics Paul Krugman once wrote that “Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

It seems that politicians today view every policy decision through the lens of “will this help us win the next election?”. A recipe for any real progress would be if instead, the primary question asked was “will this increase the level of output per worker?”. It’s time to focus on the root cause and not just the symptoms of our collective economic malaise. In the era of doom-scrolling on Twitter and twenty-four hour news channels, perhaps it’s too much to ask that the media and those consuming it pay a little more attention to the bigger picture?