Let’s face it: things can get worse
Those who are too afraid to admit the dimensions of the economic crisis even to themselves are unlikely to come up with any new solutions.
On spiked we have written a lot about the contemporary problem of scare-/doom-mongering over everything from flu pandemics to the food we eat, from terrorism to population growth. The tendency to exaggerate or even imagine risks to the human condition, and to turn the worst-case scenario into the working assumption of public discussion, have become important factors in what has been called the culture of fear.
But when it comes to discussing the very real crisis in the economy, there now appears to be a flipside to that culture of fear. It is the fear of facing up to reality and admitting the true dimensions of the problems facing the economic system. Many politicians and commentators seem to be deluding themselves about easy solutions and imminent upturns. Rather than doom-mongering, they are insisting that, to coin a phrase, things can only get better (we could not quite accuse them of ‘boom-mongering’, but give it time…).
This avoidance of reality is just as dangerous as the hyping-up of risks. Many of us might have been somewhat caught out initially by the speed and scale of the financial crisis and its impact on the wider economy. But there is no excuse now for denying what is happening.
Yet in the UK, the fantasising about imaginary ‘green shoots’ in recent weeks has blossomed into nonsensical stories such as Tuesday’s headlines declaring ‘Worst of the recession is over’. That was from the sober and authoritative voice of the BBC. It was almost as if they had forgotten that, just a week earlier, they had been forced to report a ‘Sharp contraction for UK economy’, after official data revealed that the economy shrank 2.4 per cent in the first quarter of 2009 – far more severe than the estimated 1.9 per cent contraction, and the worst results seen in the past half a century.
Even this Tuesday, the day of that ‘the worst is over’ headline, hidden within the BBC coverage was the very bad news that UK manufacturing output had fallen again in May, by 0.5 per cent – those optimistic analysts had forecast that it would rise. Top economists told the BBC that these figures ‘strongly suggest’ that, contrary to all the predictions, the UK economy overall had not gone back into growth in the second quarter of 2009 – that is, whichever way you measure it we are still in recession.
And on the very same day, buried away in the same article, it was reported that the respected National Institute for Economic and Social Research had revised its estimate downwards and now thinks that the UK economy shrank again by a further 0.4 per cent in the three months to June – the NIESR had previously claimed it was set to grow in that quarter. The best spin that this think tank feels able to put on these grim developments is that the British economy is ‘now stagnating rather than continuing to contract at a sharp pace’. Hurrah for stagnation? Still, never mind all that, read the headline: the worst of the recession is over.
Away from the headlines about rising confidence and upturns, there has been plenty of other bad news about the real state of the British economy, often buried away inside the business section.
For instance there has been much emphasis on the ‘success’ of multi-billion dollar bank rescue packages from the US and UK authorities, backed up by the policy of ‘quantitative easing’ – effectively printing money – from the Bank of England and other central banks. There was rather less coverage of the news that in April, the latest month for which figures are available, UK bank lending to businesses actually fell by £5.4billion, the largest drop in nine years – remarkably poor results given the huge amount of money that has been centrally pumped into the system.
Or again, there has been much talk of the housing market bottoming out or even rising again. Yet you could be forgiven for missing the quieter reports of the hard fact that in May, mortgage lending fell back again. Gross lending was down 2 per cent on April and 58 per cent on the year before; net lending, after subtracting the amount mortgage-holders repaid, was at its lowest on record. And this is all before we get to the personal misery of official unemployment reaching 2.2million or 7.2 per cent – the highest rate since 1997, and rising – or the total of individual bankruptcies in the first quarter of 2009 being the highest since records began in 1960.
No doubt part of the explanation for this has to do with the gap between the technical world of economics and the real world in which people live and work. Hence even if economists were right to claim that, statistically, the recession – defined as two consecutive quarters of negative economic growth – had ended, that would not mean we noticed any immediate improvement. Thus the British Chambers of Commerce survey on which the BBC based its ‘worst is over’ report this week also admitted that unemployment would continue to rise towards three million in the coming months.
But there is more than a technical or statistical gap at work here. There is a reality gap, a refusal among many authorities to face up to the dimensions of the problem. Of course we should not become obsessed with any one set of figures – things do stop falling eventually, and the grim numbers cited above could always go up a little next month. But anybody taking a clear-eyed look at the bigger picture should surely be struck not only by the continuing scale of the crisis, but the question of what can drive the UK economy out of it.
Behind the tendency towards self-delusion over the economy lies the apparent absence of any new ideas about the way ahead. Instead we are seeing vague attempts to get around the problem by hoping that somehow, somewhere, some development of meaning will come along and save us.
There is little serious public discussion about what new economic terrain we might need to expand into. Almost all we are left with is a sort of unspoken dream that somehow the financial ‘boom’ of the past decade might come back almost of its own accord. Hence the over-excitement caused in the media by any upwards tick in house or share prices. Are we supposed to have forgotten already that it was the credit-fuelled inflation of these paper assets that hid the hole where the productive heart of the UK economy was supposed to be?
And even if we did want to go through that phoney prosperity again, it ain’t going to happen. The era of endless easy credit is over, the imbalance between the dynamic value-producing economies of the East and the stagnating credit-spending economies of the West is unsustainable. If the banks were suddenly to throw open the vaults and offer credit to any business that wants it, the bigger question would remain: why would they borrow it? What could they invest it in today? Where are the productive industries and enterprises that could generate new wealth? Credit is only a means to an end – the aim of capitalism remains the production of profit. And there seems little notion yet of what new areas it might come from.
So we are left with this rather surreal-sounding discussion about the end of the recession, when there seems no obvious reason to believe a real recovery is imminent except a mystical faith that what goes down must come up, and little impetus to make it happen beyond printing more money and crossing more fingers.
Then we get a sudden shocking glimpse of reality – like the recent report that top British civil servants, frustrated by the refusal of politicians to admit the scale of the crisis facing public finances, are drawing up their own ‘doomsday’ plans for 20 per cent cuts in state spending to be presented to whoever wins the coming General Election. It is as if they are grown-ups getting on with business while the infantile politicians play games, squabble and tell fibs. The idea that a few Whitehall suits are the only ones seriously discussing these issues is bad for democracy. And it will be worse for everybody if austerity is the only option a new UK government can consider.
It is not simply, as is often claimed today, that the politicians are lying to us. You get the sense that when it comes to the economic crisis they cannot admit the truth to themselves about how deep the structural problems go. The consequence is that those problems will not be addressed, and there can be no dynamic recovery. We are left in a dead-end situation where we are supposed to be cheered up by the good news that British capitalism is only stagnating rather than contracting.
Nothing is yet certain about how this crisis will resolve itself. There is yet time for everybody from the top down to look reality in the face and start a more honest debate. Not only about the scale of the problems, but about the boldness of the solutions required – not just to cope with the debts of the past, but to invest in the future. We do not need another upwards blip in house or share prices or consumer spending. What we need is a productive, dynamic economy. That will require far more than narrow measures of financial regulation or monetary expansion – it will need a revolution in political outlook to counter the depressing culture of fear.
On spiked, we never want to doom-monger. Yet facing up to the problem is the only hope of finding a fresh solution. It might seem scary to those in authority. But it is no answer to put your head under the bedclothes and hope the monster goes away.
Mick Hume is spiked’s editor-at-large.
Previously on spiked
Rob Lyons said the British government is desperately seeking an economic revival. Rob Killick felt that we were only at the beginning of the economic crisis. He also looked at what’s in store for the British economy. Frank Furedi explained why the state won’t be the saviour of the economy. He also said we need a public debate about the economy. Phil Mullan explained that the recession was indicative of a deeper crisis. Or read more at spiked issue Economy.