The economy is back to its pre-crisis level and about time too, you may say. But living standards are not, in the sense that GDP per head is still something like 4 per cent below the peak. We are growing fast, at more than 3 per cent a year, but we need to, and not only to rebuild living standards. The government deficit seems to have stopped falling, personal debt remains high, so we need growth to help pay off debt.
True, the growth figures will almost certainly be revised up, and there will be technical changes to the series in the autumn that will make GDP appear higher – by, among other things, counting services such as drug-dealing and prostitution in national output. True too, part of the reason for the underperformance has been falling North Sea output: the on-shore economy passed its previous peak last year. But whatever qualifications you make, the recovery has been a disappointing one. In previous cycles, ground lost in recession is made up reasonably swiftly and the economy gets back to trend (long-term average) growth. It does not look as though this will happen this cycle, or at least not for a very long time.
This is not just a British phenomenon. The United States is below trend, Europe is way below trend, in Japan there seems to be no connection between the boom years to 1990 and what has happened since. So it has been a pig of a cycle for just about the entire developed world.
It is important, though, to separate the cyclical from the structural. Now that the West is on the way to fixing the problems associated with the financial crisis and is learning to live with the consequences of it, we need to think about the structural problems that the crisis highlighted.
Of those problems, the one that matters most, is the slow growth of productivity. Many economists are worrying about this. For example Larry Summers, Harvard economics professor and former Treasury Secretary for President Clinton, has written and spoken about "secular stagnation", the old idea that growth drivers such as expanding populations and new technologies are played out. Even before the financial crisis, the US was only managing to maintain a reasonable growth rate by having, as he put it in an interview in the New Republic last week, "the mother of all financial bubbles with vast erosion of credit standards and extraordinary run up in artificial wealth creation in houses and what have subsequently been criticised as overly easy monetary and fiscal policies". Ouch.
There is certainly evidence that there has been slow-down in growth in the US, going as far back as the 1980s. What happens in the US is hugely important because it is at the frontier of technology. It is relatively easy for other countries to catch up by applying best global practice: Japan in the 1950s, 1960s and 1970s, China and increasingly India at the moment. The UK did reasonably well in productivity growth between 1980 and 2007, but a lot of that was catch-up. Since 2007 we have done particularly badly, the flip-side of our rapid growth in employment.
For the US, from the 1950s to the 1970s, labour productivity rose by around 2.5 per cent a year. Then it fell to around 1.5 per cent until the 2000s, when it seems to have picked up to more than 2 per cent, or at least it did until the crash. Of course it may be that the 2000s recovery was a bit of a mirage associated with the boom – financial services have very high productivity even if what they are doing turns out to be destructive. Since 2011, US productivity growth has been only 1.1 per cent a year.
So the figures, as so often in economics, are mushy. The perception in the US is that productivity growth is disappointing, and various reasons have been trotted out to explain it. The political right argues that it is the result of poor incentives for entrepreneurs, weak schools, excessive regulation and so on. The left believes it is a lack of government spending, particularly on infrastructure, inadequate government support for scientific research and exports, etc.
There is a further and more general reason for concern. It has long proved much easier to increase productivity in manufacturing than in services, so as the former has shrunk relative to the latter you would expect overall gains to be harder to come by. The huge task is to work out how to increase productivity in the service industries – a huge task for the UK too. Can the new technologies help?
Maybe something is happening not yet caught in the data. The expression secular stagnation was coined by Harvard economist Alvin Hansen in the 1930s. But we now know that the 1930s were a time of great innovation, laying the foundations for post-war growth. Fingers crossed something similar is happening again right now.