The recent release of a revised set of GDP statistics by Britain’s Office for National Statistics showed that growth had not quite, as previously thought, been negative for two consecutive quarters in the winter of 2011-12. The point, as it was reported, was that a UK recession (a second dip after the Great Recession of 2008-09) was now erased from the history books — and that the Conservative government would take a bit of satisfaction from this fact. But it should not.
Several of my colleagues on the Harvard faculty have recently been casualties in the cross-fire between fiscal austerians and stimulators. Economists Carmen Reinhart and Ken Rogoff have received an unbelievable amount of press attention, ever since they were discovered by three researchers at the University of Massachusetts to have made a spreadsheet error in the first of two papers that examined the statistical relationship between debt and growth. They quickly conceded their mistake.
Then historian Niall Ferguson, also of Harvard, received much flack when — asked to comment on Keynes’ famous phrase “In the long run we are all dead” — he “suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay.”
An amazing thing has happened over the last five years. Against all expectations, American emissions of carbon dioxide into the atmosphere, since peaking in 2007, have fallen by 12%, back to 1995 levels. (As of 2012. US Energy Information Agency). How can this be? The United States did not ratify the Kyoto Protocol to cut emissions of greenhouse gases below 1997 levels by 2012, as Europe did.
Was the achievement a side-effect of reduced economic activity? It is true that the US economy peaked in late 2007, the same time as emissions. But the US recession ended in June 2009 and GDP growth since then, though inadequate, has been substantially higher than Europe’s. Yet US emissions continued to fall, while EU emissions began to rise again after 2009 (EU). Something else is going on.