I have this morning already noted that today marks the tenth anniversary of the collapse of Northern Rock. I have also noted that i have been engaged on that and related issues on this blog ever since (this will be the 14,390th posting of an article on this site). I will be discussing what I have learned in a discussion at the Royal Society of Arts this evening. I will also be offering my explanation as to where we are now, a decade on.
This last part is the easy bit and the element I will focus on. The simple fact is that we are in denial. What we're in denial of is three things. The first is that the world did change. The fact is that the banking crisis did signal the end of neoliberalism: whatever it might have promised failed with the queues at Northern Rock and the subsequent collapse of Lehman. It was simply not possible thereafter to suggest that light touch, unfettered market capitalism where competition could supposedly ordain the correct allocation of resources for society was tenable as a basis for organising society. It had showed that it did not work; that it externalised its costs and that it imposed burdens far greater than any supposed benefits it could deliver. And yet we remain in denial on that fact: the political aim of most policy since mid-2010 (but not in 2008 to 2010) has been to restore neoliberalism to its perch, and that cannot and will not happen because it is impossible to do.
The second thing we're in denial about is the fact that policy and politics have been in conflict since 2010. Quantitative easing is the obvious example of this. If markets worked it should not have required £435 billion of government created money to keep the financial system solvent and flowing since 2009, but it has, and that intervention did not produce inflation (the current bout of inflation being Brexit and not QE created). The government has stepped in, because it has had to. The failure of austerity, or perhaps the inability of government to deliver the balanced budgets it promised, is the second indication of this. Whatever the political will, the fact is realpolitiks did not permit austerity in the way neoliberalism continually demanded. The real world is not the same as the space the policy wonks and their ministerial adherents think it is, bit this is still denied, not least by the Bank of England.
Third, there has been outright denial. An outright denial of the fact that money has been printed to keep the economy afloat. And an outright denial that government debt is not in excess of £1.7 trillion as a result (88% of GDP) but is instead £1.3 trillion, or 66% of GDP because the government simply cannot owe itself money and it owns £435 billion of its own debt. Just as there has been a denial that cutting staff at HMRC might have contributed to the tax gap, and that this was a policy choice. And a denial that austerity has not worked, which as a result requires that the government keeps saying it will deliver it even when it so obviously cannot and it is so harmful to keep trying to do so.
This combination of failure, a refusal to acknowledge it and a consequent denial of the facts that are so obvious that they really cannot be avoided is toxic. These factors are in themselves the risk that we now face. Unless we are willing to look for new economic models, embrace them, tell the truth about what they require of us, and plan to use them to best effect we simply set out to fail. And that is what is happening, aided and abetted by the fact that behind this whole process of denial there is a toxic risk that is not being addressed, which is that the debt that created the 2007 crisis can still be tolerated now. It cannot be.
Debt is a measure of a wealth divide: those who have not owe to those who have. That's what it is all about. There is no more or less to it than that. And at the end of the day that is what has to be corrected, which is why the toxic finance system that continues to create and fuel the growth of that debt has to be addressed. But right now denial is not letting that happen. And that's where the basis of the next crisis will be found.
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You have summed up the situation accurately, clearly & concisely. What’s not to understand? My take is that our political leaders (?) are wilfully negligent, protecting their power base over the needs of the nation. If there was any justice they would be liable to criminal prosecution. The 1980s Neo-liberal revolution and its subsequent hegemony has been so well orchestrated & implemented that I fear nothing short of another financial melt-down or revolution will unseat it. Those hanging on to the levers of power will not give up voluntarily.
Even a Labour victory at the next election – which is far from certain – will not see the introduction of a new economic order. How many Labour MPs understand how a modern monetary system actually works and, even if they do, have the cajones to fight for it in public?
It’s the prime struggle for the well-being of the next generation. I can only hope that it’s prepared to put aside its collective iPhone long enough to engage actively in order to achieve the change it needs for a better quality of life. You, and all the other progressive economists, are illuminating the path it must follow.
Ultimately it’s about Social Justice. In this respect Marx & Engels got more right than wrong. Sadly many more lives will be sacrificed unnecessarily at the altar of Mammon (i.e. protecting the value of private assets at any price) before there is radical change. And the UK will probably be the last western democracy to adopt it. Karmic retribution for the Empire?
Along with two colleagues have asked for a meeting with my (unfortunately) Labour MP to ensure he knows where money comes from.
We’ll see…
“Next election”, you say. Now the Tories have granted themselves the powers they have, why would they allow any further elections? I did say there’d be no more elections after about now in comments on this column several years ago, as some might recall. It was suggested that couldn’t happen as there’d need to be constitutional change first. Well, here we are. The Tories have put themselves in a position where they may do pretty much as they wish, have they not? So why would they bother with any more elections, especially when the signs are they’d lose them anyway?
Parklife, as I believe the expression goes.
Not all of us are in denial, and many would happily see the back of neoliberalism. Therefore it would be useful I feel to further explain who is in denial & the reason for their lack of understanding.
I personally see the current situation as an ideological war of ideas and we are in paradigm shifting times. Neoliberalism is losing hegemonic position. Those in denial will diminish…
I hope you are right
Your work plus that of Paul Mason, Naomi, Klein, Steve Keen & Ann Pettifor et al means dogmatic believe in neoliberalism is no longer unchallenged.
Its an ’emperor has no clothes’ moment.
More people are understanding this, even if the traditional and main stream media are wedded to and still overtly and covertly preach neoliberalism.
Keep up the good work.
Change can and will happen 😉
I agree on the change
I have to agree with you.
People on the progressive group I know of don’t even mention economics or money as the means of enabling a better society. They are quite honest about their ignorance but do not see this as a problem in meeting their goals. Government and being in government is where the power of money resides and can be realised for everyone.
This morning on Radio 4 in a discussion about the ‘pay claim’ being put in by the NHS, the reporter said that the taxpayer had to be able to afford it!! Yet another wrong headed approach being reinforced.
Precisely
Perhaps that’s telling us that targeting the media for ‘education’ is a very high priority. Getting people like Richard, Ann Pettifor et al out there, and building up a wider group of people who can deliver the same messages to media who will distribute them more widely
As we know, social media is all very well but people tend to stay in their echo chambers. Alternatively, intelligently trolling commentators whom others might listen to…
PS I was lucky enough to be at the RSA event Richard referred to. Lots of great speakers
It was good to see you Robin
“Those who have not, owe to those who have” and this indenture begins early and is useful to those who have, to maintain the correct order of things, as they see it. Student loans means life begins with heavy burden of debt. Such a debt provides for an obedient workforce, terrified of making demands for better conditions.
Agreed
[…] offered comments on the theme discussed here yesterday, but strongly supported Daniel’s view that some assets are horribly overpriced, and that this […]
As for ‘denial’ surely Junckers State of the Union tops everything…
I listened to Junckers address today. I could not believe what I heard, so I checked the transcript:
http://europa.eu/rapid/press-release_SPEECH-17-3165_en.htm
“Together, we showed that Europe can deliver for its citizens when and where it matters.
Ever since, we have been slowly but surely gathering momentum.
It helped that the economic outlook swung in our favour.
We are now in the fifth year of an economic recovery that finally reaches every single Member State.
Growth in the European Union has outstripped that of the United States over the last two years. It now stands above 2% for the Union as a whole and at 2.2% for the euro area.
Unemployment is at a nine year low. Almost 8 million jobs have been created during this mandate so far. With 235 million people at work, more people are in employment in the EU than ever before.
The European Commission cannot take the credit for this alone. Though I am sure that had 8 million jobs been lost, we would have taken the blame.
But Europe’s institutions played their part in helping the wind change.
We can take credit for our European Investment Plan which has triggered €225 billion worth of investment so far. It has granted loans to over 445,000 small firms and more than 270 infrastructure projects.
We can take credit for the fact that, thanks to determined action, European banks once again have the capital firepower to lend to companies so that they can grow and create jobs.
And we can take credit for having brought public deficits down from 6.6% to 1.6%. This is thanks to an intelligent application of the Stability and Growth Pact. We ask for fiscal discipline but are careful not to kill growth. This is in fact working very well across the Union — despite the criticism.
Ten years since crisis struck, Europe’s economy is finally bouncing back.”
And your argument is?
“Ten years since crisis struck, Europe’s economy is finally bouncing back.”
I love the implication that because of the EU economics policies the eurozone has bounced back, rather then “in spite” of their economic mismanagement especially in the period before they implemented QE in 2015 (well after the US and UK) and began strongly supporting infrastructure with EU backed loans from the European Investment Plan was only proposed in 2014. At least 4 lost year before EU backed investment was put to work which is only now beginning to bear fruit.
But we’re still sitting on our hands waiting for the private sector to provide investment to pull us out of our own slump.
I agree with your last line