A tale of two recessions

“It was the best of times, it was the worst of times…”

Dickens may well have been writing about 18th century France, but it’s likely that historians looking back at 2009 would conclude something similar about our current economic predicament.

In the midst of a recession triggered by a financial crisis, the economy at large has been in decline in the UK for five quarters. The knock-on effects of the credit crunch, brought on largely by unsustainable and deregulated banking speculation, have been dire; bail-outs in the billions which, according to Vince Cable’s sage analysis, “privatise profits and nationalise losses“; job losses in the millions, with financial services, manufacturing and construction hit particularly hard; unprecedented levels of home repossession; and the spectre of devastating cuts in funding haunting the public sector.

Following months of abysmal economic news, however, there are signs that for some, the worst may be over. Barclays have reported a surge in banking profits, which undoubtedly is good news for them. There are also signs that house prices may be on the rise again, and that the car industry may be driving (no pun intended) a recovery in manufacturing. So, panic over, normality restored – perhaps Gordon Brown did save the world after all?

Or maybe not. For every indicator that turns positive, another seems to take a further nosedive into alarmingly negative territory. The number of people out of work, and hence suffering the devastating social and economic sequelae of worklessness, has soared in recent months; moreover, this increase in unemployment shows no sign of abating – the returning confidence in the financial sector hasn’t transmitted itself to other areas of the economy nearly as fast as the credit-crunch wildfire spread nearly two years ago. Tens of thousands of young graduates will emerge from their studies into the most barren employment landscape in decades. The number of homes being repossessed is also a cause for great concern, particularly given the acute pre-existing shortage of social housing.

So are we just seeing a time-lag effect here, with a full economic recovery just around the corner? Somehow I doubt it – here’s why. Despite the dithering over Northern Rock, the government was right to give capital support to the banking sector; trouble is, that’s all they did. Instead of truly nationalising the failed banks, we the taxpayer cut them large cheques and hoped that if they got their house in order, a fresh flow of credit would restart, literally, business as usual. So here’s why the financial sector, and some allied industries, may well pick up in the coming months, whilst the rest of the country flounders; the government and its advisers simply didn’t have the political courage to use this recession to fundamentally re-calibrate our nation’s economy, to heed the dark portents and stave off a full-blown depression, but they found it within themselves to aid ailing banks and restore their balance sheets for fear of collapse. There were only tactics, designed to avert the worst, and no accompanying strategy or vision of how we could emerge from this mess a greener, fairer, more sustainable society.

And so to the consequences of these timid policies. One the one hand, we have what appear to be real green shoots, real signs that finance is back on track; on the other, savage cuts in public expenditure loom just when we need a Keynes/FDR-style public works programme. This dichotomy demonstrates just how disinterested this administration is in the outcomes of its policies for all but a tiny minority of swing voters and senior executives; as long as they’re happy, New Labour’s thinking seems to go, all is right with the world.

So have those of us who saw this crash, this disastrous mismanagement of our country’s resources both public and private, as an opportunity to address serious underlying inequities in our economy, have wemissed an opportunity here? In a sense we may have done, as the apparent restoration of the status quo ante in the Square Mile gives the government something it can point to as a success. Yet that’s not what this feels like – far from it – for most people; rather, we’re seeing a creeping return to the bonus-driven, house-price linked, debt-fuelled ways of the past, whilst the ship carrying green jobs, more social housing, greater accountability from business and politics to the people, nothing short of a renewal of our country’s foundations, sails on past into the horizon. It’s not too late to call that ship back to shore and truly reshape how Britain works, but the return of mammoth profits whilst millions face uncertain futures shows that time is running short.

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4 Comments

  • Bill le Breton 11th Aug '09 - 8:07am

    We are not out of danger yet. The quantity of money in the economy is still falling. See levels of M4 published last week.

    Whether you are a Keynsian or a Monitarist this all points to the spectre of deflation. The rational individual response to a world of falling prices is to delay purchases until prices fall.

    That’s why the Bank of England announced a further £50 billion of quantitative easing on the back of the M4 figures.

    Quantitative Easing creates money, but so too does Government borrowing. The idea is to try to counter balance the destruction of money that occurs when individuals and firms repay debt. Governments can do this with both QE and increases in Government borrowing which in turn can be used to fund public infrastructure projects.

    It is madness to support QE whilst simultaneously campaigning to cut Government Expenditure as the Lib Dem leadership is advocating not least in “Fresh Start”. Which features such suicidal (economically and politically) top lines as: “cuts will be necessary to deliver any priorities”.

    We are boldly going into the pre-election phase trying not to get to the left of the Conservatives when we should be putting forward a radical agenda of public expenditure on housing, transport, energy production, welfare and reform.

  • The term this post is looking for is “jobless recovery”.

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