John Humphrys asks: Economic Insecurity: How Frightening?
One of the commonplaces much repeated since Margaret Thatcher died is how different the world is compared with when she first came to power a third of a century ago. The economy is the most striking example. Many millions of people (and not just in the developed world) are far, far better off than they were back then. But, equally, the economic structures on which our prosperity rests seem far more fragile than they used to be. Indeed, there is perhaps a greater sense now than ever before that no one really knows what’s going on. How frightened should we be by economic uncertainty?
Much of the alarm about our current economic predicament can, of course, be traced back to the financial crisis of 2008 and to the Great Recession it caused. Five years on, it is still far from over. That financial crisis was magnified by the single most important development of the last thirty years which Mrs Thatcher (and all her successors) made sure Britain was part of – globalisation.
Back in 1979 there was an international economy all right, but it was nothing like as interconnected or interdependent or large as it has since become. Policies such as abolishing exchange controls and removing trade restrictions, espoused from 1980 onwards not just in Britain but throughout the world, led to two decades of economic boom. The opening up to world trade of emerging economies such as India, Brazil and, most of all, China led many to think we had entered a period of permanently faster economic growth and constantly rising prosperity.
The financial crisis put an end to such wishful thinking. It was not that 2008 presented us with just another banking crisis such as has regularly punctuated the history of capitalism. It exposed something new: we had all become so dependent on each other that, for the first time, it was hard to see who was in a position to help those who had been hit. In one way or another, everyone had been hit.
That is the inevitable consequence of globalisation and, in very simple terms, is why it is proving so hard for the world economy to drag itself out of recession. Only this week the International Monetary Fund once again downgraded its forecasts for world economic growth in 2013 and warned that “an uneven recovery is also a dangerous one”.
Anyone looking dispassionately at the sequence of events over the last five years will have seen an alarming pattern emerging. First, the underlying problem manifests itself in an especially acute form. Measures are then taken to try to deal with it and the world sighs with relief that the particular problem has been sorted out. Then it breaks out again in a different form.
That’s been the pattern, for example, in the eurozone. The eurozone crisis erupted in its most spectacular form in Greece. There was talk of the country having to abandon the euro and go back to the drachma, even of the eurozone itself breaking up. In a process that often seemed as painful as pulling teeth, measures were eventually taken not only to shore up Greece but to make some provision for future crises. For several months after last summer the consensus view seemed to be that the eurozone’s problems had been solved. Then along came Cyprus and imminent Armageddon was predicted again. Once more measures were taken and Cyprus has now gone out of the news. Idle observers could be forgiven for thinking all is now well, but anyone who takes a look at the Portuguese economy, the state of Spanish banks or the debt levels of Italy (which doesn’t even have a government at present) will know otherwise.
The United States is following much the same pattern. It’s only a few months ago that the world’s biggest economy was expected to fall off a “fiscal cliff”, plunging us all into the abyss. Only the most temporary solution was agreed. But because recent economic statistics have been rather favourable some people who should know better are imagining that the problem is sorted and that the US economy will be our salvation, even though the underlying economic and political problems associated with government deficit levels remain untouched.
A Martian might well see in this pattern a human weakness for grabbing at any news that can persuade us our problems are cracked and then burying our heads in the sand. For all the acreage of so-called expert analysis, the Martian might even conclude that none of us really knows what’s going on.
Certainly, a casual look at the headlines this week would suggest that, at the very least, we still live in a highly volatile and unpredictable time. “Global economy remains at risk of sudden stall”, the Financial Times reported on Monday. It went on: “Despite strong financial markets and confidence returning to business and consumers in emerging economies, overall indicators of growth have hardly budged since mid-2011, since when repeated tentative upswings have always been snuffed out by weak data and renewed stress in the eurozone.”.
Tuesday’s FT offered us: “Investors in rush to dump gold”. But gold had been the safe haven against global insecurity for years, so why should investors want to dump it now? Explanations given included new faith in the US economy causing investors to rush into the dollar, and growing confidence that the eurozone had the worst behind it. Given the precarious foundations for either belief it seems fair to predict we might well see a rush back into gold before long.
Then on Wednesday: “Warning on ‘out of control’ China debt”. This should surely spook people. For a long time now China has seemed our best hope. It’s not that anyone believed China could sustain its phenomenal rates of economic growth, but rather that, even with more moderate growth, its vast population and the demands of its economic development would ensure a market for the rest of the world’s goods and services that would help us all get out of recession. Now we hear one of China’s most senior auditors saying: “We audited some local government bond issues and found them very dangerous so we pulled out…It is already out of control. A crisis is possible. But since the debt is being rolled over and is long term, the timing of its explosion is uncertain.” But that there would be an explosion he seemed not to doubt. He warned that it could create a crisis “even bigger than the US housing crisis” which, of course, sparked 2008.
Calm minds will counsel that we should not get over-excited by any of this. Predicted crises rarely happen, they will say. Life finds a way of going on. To which the answer may be: “Up to a point, Lord Copper”. Similar bromides were no doubt uttered at Versailles in 1788 and a British diplomat famously remarked in 1913 that a European war had never seemed so remote.
What seems certain is that those who, like Mrs Thatcher, advocated globalisation as the means to re-energise our economy did not expect it would cause the degree of volatility and insecurity that it has (though some opponents most certainly did). For them, it is a case of unintended consequences. Probably the advocates imagined that if any unforeseen problems did arise, then they would be dealt with by wise heads. What we are now wondering is whether human beings have wise enough heads.
It is perhaps irrelevant to ask whether this uncertainty and insecurity are a price worth paying for our increased prosperity since no one in any position of power is offering a serious alternative. But if the increased prosperity goes on being ‘stalled’, if our children and theirs find themselves both more insecure and also poorer, then that might change.
Do you feel more insecure than you did? If so, do you think it is a fair price to pay for the greater prosperity most of us have enjoyed? Do you think those in power know what to do? And are you confident that anyone really understands what is going on around us?
Let us know your views.
