Growth now the key issue

 For those who are just starting Economics this week it will be important to get a sense of perspective on recent economic events.

It would have been hard not to have noticed that times are tough due to a global recession that started in 2008. Despite a period of recovery the world economy is shrinking again with a particular crisis in the EU.

The causes of the crisis and why it has gone on so long are a matter of debate. It is far too complex a subject for this post. However consequences of the present situation are very serious and worth pointing out.

Households are worse off because:
1. Incomes are rising slowly or not at all.
Inflation - the rate at which prices are rising - is higher than the rate at which incomes are rising meaning everyone is worse off in real terms.
2. Unemployment is high.
Some people are therefore earning far less than before the recession, concentrating the costs of the recession on those who are unlucky enough to have lost their jobs and can't get another one.

Firms are worse off because:
1. Households and firms have less money to spend.
So firms have lower sales and they have little confidence that new investments will make a profit. So the new jobs we need are not being created.

The economy is worse off because:
1. There is less investment by firms and so low growth.
Firms must have confidence to invest and low demand and a shrinking economy mean this is missing.
2. The government have lower tax revenues and higher expenditure.
Governments get money from taxes on income and spending, both are lower in recession. But expenditure rises on things like unemployment benefits. So there is less money to spend on hospitals, schools and other services that makes life better for everyone.

This is a very brief overview of the problems. The article below highlights the problems of the current growth position and the pressure of government to act to improve the situation.

The Guardian article is here