[email protected]: Vince Cable – This recession is very far from over

Over at The Independent, Lib Dem deputy leader Vince Cable pours cold water on the idea the economy is bouncing back, arguing that we are seeing an economists’ and financiers’ recovery rather than a real one. Here’s an excerpt:

The mother of all economic crises seems mysteriously to have vanished in the face of a determined counter-offensive by the forces of optimism. There are daily accounts of returning confidence in financial and property markets and bodies like the National Institute of Economic and Social Research are forecasting an early return to growth. Perhaps those government ministers who spotted the “green shoots of recovery” in the frozen winter earth were not so deluded after all?

The truth is that there is enormous uncertainty. None of us know whether the recession will be mild and short, or deep and prolonged. What we do know is that there has been a massive policy response: near zero interest rates; credit expansion through quantitative easing; large government fiscal deficits; bank rescues; and a big devaluation.

The ideas represented by Milton Friedman and Keynes have been pooled and a combination of highly expansionary monetary and fiscal policy has been deployed. There has been an impact. The rate of economic decline has been slowed; the errors of the 1930s have been avoided; and the fears of Armageddon have lifted.

But this is an economists’ and financiers’ recovery rather than a real one: forward indicators and market expectations rather than facts on the ground. Unemployment is still rising steeply, especially among young people. The late summer will see a large cohort of unemployed graduates. Banks are continuing to restrict credit to solvent borrowers. Local small businesses with an exemplary credit history still come to my weekly advice surgery angry that banks are forcing them to the wall through unrealistic demands for higher security and fees. There is little sign too that heavily indebted consumers want to embark on a spending spree; or that business is contemplating investment beyond the rebuilding of stocks.

In framing the policy and political response to recovery – if that is what this is – we need to reflect on what we are recovering from. The optimists are treating the crisis like a bad dose of flu. It was frightening while temperatures raged at dangerous levels, but the fever is passing. As with the recessions of the 1980s and 1990s, we can expect to return to “normal”.

This diagnosis is profoundly wrong. The patient has suffered a massive heart attack. Thanks to the wonders of modern economic medicine, the patient is improving remarkably rapidly in the Intensive Care Unit. But any suggestion of a return to “normality” is an invitation to another heart attack. There is now a long term legacy of weakness which we have to learn to live with.

You can read the aricle in full HERE.

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This entry was posted in LibLink.


  • Thankyou Vince; I’m glad that someone knows what is really happening.

  • Liberal Eye 17th Jun '09 - 6:04pm

    Vince is right again.

    Profs Eichengreen and O’Rourke have just updated an earlier paper comparing the economy now with that of the Great Depression. It’s not a happy story: they conclude that today’s crisis is “at least as bad as the Great Depression”.


    Most of the story is told in a series of excellent graphs so you don’t need to be an economist to get the drift of it. Highly recommended.

  • Vince is a great MP and he has more economic literacy than most MP’s (but that does not say much!). He is not the UK’s fore most expert of economics and I wished people would listen critically to him rather than accept everything he says as gospel. He is just a man!

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