Graph of the day. How to spell ‘austeridad’?

from Merijn Knibbe

The news of the day was the 9.8% drop of  retail sales in Spain in April. Time for a long-term perspective. The other day, Tyler Cowen stated that Spain could be in situation A (a deep but ‘normal’ recession with, in the end, a rebound) or (as he believes) in situation B: a self reinforcing death spiral of high costs, increasing unemployment, lower expenditure, austerity and post-boom capital flight (he uses other phrases, but that’s what he says. I’m by the way much, much more positive about Spanish competitiveness than almost everybody else). Does the drop in retail sales fit in situation A or situation B.

Eurostat does, at the moment, not provide Spanish data for 2012 I spliced the data from the Instituto nacional de estadistica for January-April to the Eurostat data. There will, no doubt, be some conceptual differences between the Eurostat and the Intistuto series. Never mind. The pattern is clear.

* The decline in April is the continuation of a 4,5 year old trend
* Total retail sales have declined to their 1999 level
* And as the Spanish population grew considerably between 1995 and 2012, on a per capita basis retail sales (including internet sales!)declined with about 8%. Yes, per capita sales are lower than 17 years ago.

An almost continous drop of retail sales which already lasts 4,5 years and shows no signs of abating (to the contrary) clearly does not fit in ‘situation A’. Does it fit in situation B? Of course it does. Situation B is the classic ‘meltdown’ of aggregate demand, among other things caused by a sustained decline in consumption.

So, can all those economists who talk about the virtues of ‘belt-tightening’ please shut up. The Spanish population has already tightened its belt, since November 2007 to be precise. ‘Despite’ this, there’s no solution in sight. Only more unemployment and lower real wages. And even more belt tightening. But no solution. Just a ‘situation B’.