19 October 2010: Déjà Vu, All Over Again
It's now two years since my previous post, a gap that should qualify me for a slow blogging award. Why so long? Mainly because I've wondered whether there is much more to add: the UK took a long bath in the icy waters of recession, then surfaced for a while, and now it looks like we might be about to fall back in again. It's tempting to say that not a lot has changed: banks may have been nationalised, but they are back to paying out massive bonuses; the regulatory system seems to be deep-frozen; but people still have jobs and are still spending money. Things probably look a lot different from Ireland, or Greece, or Spain, even America. But it's tempting to say that normal service has been restored in the UK. Or, as James Callaghan nearly said in 1974, "Crisis, what crisis?" But things are about to change: the Coalition government is poised on the brink of the biggest reductions in government spending since the Geddes Axe of the early 1920s. John Maynard Keynes will no doubt be spinning rapidly in his grave, but will it work, and what happens next? Before answering, we have to consider another couple of questions: what caused the crisis (how did we get here); and how do we solve it (where are we going?)
Answering the first question used to be relatively easy. Mervyn King, Governor of the Bank of England, spoke at the TUC a few weeks back and told us whose fault it wasn't: you and me. But according to Howard Davies, Director of the London School of Economics and founding chairman of the Financial Services Authority, there were at least 38 reasons for the economic crisis. (For a summary of his book, The Financial Crisis: Who is to Blame? see his article in Prospect magazine at http://www.prospectmagazine.co.uk/2010/08/dont-bank-on-global-reform/).
If identifying the cause is a pre-requisite for solving the problem, this isn't a good start. Putting that to one side, policy makers and economists agree that A Problem That Must Be Solved is The Deficit. But if there is agreement that The Deficit needs to be reduced, there is no consensus on how to do it, or how quickly. Specifically, how much of the deficit should be reduced by increasing taxes versus cutting services. And over what time period? The arguments have divided economists and policy makers into two camps: the Rapid Reductionists (aka The Coalition) believe that the cuts in public services to be unveiled on 20 October 2010 will reduce the burden of the state, free up resources for the private sector, and lead to a resurgence in economic activity. The Sceptics think that the cuts will precipitate mass unemployment, huge reductions in aggregate demand and a Japanese-style lost decade of recession, if not depression. Not to mention, if France is a taster, social unrest. So, as economists can't agree on the analysis, the decisions are political at best, if not ideological. Worried? You should be.
Time will tell if the only blog really needed was the first one. And whether that downloadable handy guide for what turned out to be the recession of 2008-2010 might come in handy for a second time.
20 October 2008: Goodbye To All That....When I'm not taking photographs or being a Celebrant, some of my time is spent at Brighton University, where I lecture in economics. As the pundits pontificate on what happens next in the global economy, here's a sobering thought from Hegel,
"What experience and history teach us is this - that people and governments have never learned anything from history, or acted upon any lessons they might have drawn from it."
Let's hope Hegel was wrong. Either way, you can download my slide "Wave Goodbye, Say Hello", for a look at how global economic turmoil will change how we live: