The different way in which the Uk and USA have reacted to fairly similar NGDP pathways has occasioned some useful but high level blog commentary. The basic conclusion is that the UK suffered a supply shock as well as a demand shock; see Historinhas on the not so much Siamese twins qualities here, and Professor Sumner, who says we combine fantastic labour market flexibility with lousy labour productivity.
I am not so sure. Labour productivity shocks don’t just hit an economy like a sudden storm. I can list some sharp supply side hits – to oil, financial sector activities, and the withdrawal of credit does damage capacity and can do so sharply. But the way the shock had coincided with the massive aggregate demand hit has always made me look there, first. Ockham’s law. The US economy reacted to weak demand by shedding labour. The UK by lowering it’s price. But we’re both Anglo Saxon economies trading internationally, with many of the same products, multinationals, and markets.
But when Marcus says the UK needs structural reform I take it seriously. So- what reforms do we need? Not the labour market. Bank credit, sure. But for me, the biggie is the one you can see from space. Land.