For politicians weaned on well-defined episodes of recession and recovery, this long, slow and difficult economic retrenchment will require a change of policy – and language
Politicians on both sides of the divide reached for the Bumper Book of Cliches last week as they reacted to the news that the double-dip recession was over.
For George Osborne, it was evidence that his policies had put us "on the right track"; while Ed Balls – whose analysis of the economy has repeatedly been proved correct over the past two years – insisted this was "no time for complacency" (is there ever a time?).
While Labour was desperate not to be seen as dismissive of the strongest quarter's GDP growth in five years, Osborne was scrupulously careful to avoid triumphalism, attributing the long-delayed recovery to "the hard work of millions of people and businesses". Behind the scenes, meanwhile, Treasury officials were reminding everyone that strong early GDP estimates can be revised down, and that growth was boosted by one-off factors – not least the Olympics – that won't be repeated in coming quarters.
These carefully choreographed pronouncements reflect the fact that today's politicians are being forced to rewrite the script as they go along, to adjust to a new economic reality.
Just how much has changed emerged in two other pieces of news last week, away from the short-term noise of one quarter's numbers.
The first was the Office for National Statistics' latest report on the country's wellbeing. David Cameron has asked the ONS to look into how best to lift the lid off the traditional measures of economic output and gauge families' life satisfaction – what used to be known as the elusive "feelgood factor".
In last week's study, the latest in a series, the ONS found that net national income per head, which experts including Joseph Stiglitz have found to be a better indicator of families' living standards than raw GDP, had declined by more than 13% from its pre-crisis peak by the summer of this year – far sharper than the 4% drop in GDP.
There are a number of reasons for this, not least the clobbering many people's incomes have taken from rising inflation, caused by rocketing commodity prices and the VAT increase. And with inflation drifting down (though it may blip up again this autumn as fuel prices rise), the squeeze should start to ease slightly in the coming months.
But the overall message was that even though unemployment has risen less dramatically than in previous recessions, living standards have taken a drastic hit. Many households up and down the country are having to permanently adjust their hopes for the future – downwards.
Sir Mervyn King made much the same point in his wide-ranging speech in Wales last week. Aside from a dash of teary-eyed Olympics nostalgia, from which it seems no one is immune ("recall that balmy night in late July … the sound of Welsh children singing Cwm Rhondda on that beautiful beach in Rhossili filled the Olympic stadium"), the Bank of England governor used his appearance to warn that the UK, along with much of the industrialised world, may be working through the after-effects of the crisis for years.
"After a period of lopsided expansion, with growing trade deficits and debt levels, and a collapse of their banking systems, advanced economies across the world are facing a huge adjustment. Such is the scale of the global adjustment required that the generation we hope to inspire may live under its shadow for a long time to come," he said. He talked about a "downward correction of expectations about future incomes and wealth" that will inevitably change consumer behaviour and slowly start to shift the shape of the economy.
It's hard to know how much the productive capacity of the economy has been damaged by those years of "lopsided" growth; but an army of export champions won't spring up overnight to replace jobs lost on boarded-up high streets, and Ford's announcement that it is laying off up to 1,400 workers as demand from the continent shrinks demonstrates the scale of the challenge.
But the governor clearly believes we may be facing a long-drawn-out reckoning. In practical terms, that may mean thousands more loans go sour, and businesses go under, as it becomes increasingly clear we are not destined for a textbook recovery and instead face a period of sluggish growth – what Danny Gabay of consultancy Fathom calls "bumping along the bottom".
For politicians weaned on boom and bust, recession and recovery, such a long period of pain will require a marked change of policies – and language. "Pre-distribution" is Ed Miliband's first stab at a response to an economic world in which growth is weak or non-existent and government is too busy paying down the debts of the past to borrow any more from the future – though what it means in policy terms is, so far, harder to pin down.
Cameron's remark that "the good news will keep on coming" at prime minister's questions last week sounded distinctly like the clapped-out old politics of riding recovery to seal an election victory. But Osborne's more measured response to the GDP figures suggests that he's well aware the improvement may be short-lived; that even if it comes, it may not improve families' fortunes as much as they hope; and that in order to win over voters, he will have to stress instead the long-term, more nebulous project of building a better economy.
The panicked "back us or we'll turn into Greece" rhetoric of the 2010 election can hardly be applied to an economy that's been flatlining for years. Instead, expect to see politicians at both ends of the spectrum reaching for a different vocabulary – stressing aspiration, wellbeing and fairness over clear-cut, mathematically measurable concepts such as recession and growth.
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