Since the financial crisis started last year, more and more people I know have stopped skipping from the editorial to the sports pages in the newspapers and started reading the business news more often. It feels like we should try and understand what is going on, but frankly, I’m still confused.
One the one hand, we are told that we are facing a "recovery" and the end of the recession, whilst at the same time unemployment is at its highest level for 14 years. Then we have a strange debate between the mainstream political parties about the difference between cuts and ‘efficiency-savings’, but a general acceptance that one way or another, public spending has to shrink by between 10% and 20%.
Apparently, without this drastic action, which will increase unemployment by between 700,000 and 1.4 million people, the very financial institutions that got us into this mess in the first place – many of whom we now wholly or partly own – will react badly to the level of debt created by stopping them from collapsing and lose ‘confidence’ in the economy. But the economy isn’t some association or organisation that is somehow separate from us – it is us. So does that mean that what the markets would really lose confidence in is their ability to make staggering amounts of money from us as they have in the past?
Last October as the banks were reeling, I remember reading a post on the left-of-centre blog Liberal Conspiracy, which was charmingly titled “The UK bank bail-out: some notes for idiots” and said:
The taxpayer isn’t “footing the bill” for anything. The taxpayer is getting an excellent portfolio of assets, which will be worth a great deal of money in five years’ time, for next to nothing.But nearly a year on, it does feel exactly like we are footing the bill for bailing out the banks. The ‘next to nothing’ that was paid out is now the primary excuse for making taxpayers pay out twice, first with a massive subsidy for the wealthiest in the country and second with the loss of personal income, purpose and security that mass unemployment brings.
Having spent £500bn on the bailout, the debts that Royal Bank of Scotland, Lloyds TSB and HBOS, now partly nationalised, are liable for are now our debts, pushing up the costs to £1.5 trillion. Now it seems that we will also have to fund a bailout of secretive, unaccountable off-shore tax havens like the Cayman Islands and the British Virgin Islands.
And are the banks grateful for our help? Hardly. We haven’t seen any sense of contrition from the financial sector we how bankroll. They continue to vigorously defend the bonus culture that encouraged the kind of short-term, high risk decision-making that brought about the financial crisis in the first place. A number of greedy, ungrateful employees of a German-owned investment bank are even suing for payment of their unpaid ‘discretionary’ bonuses. And it’s not just the banks: whilst the rest of us are expected to endure the pain of cuts and unemployment, the rich are using executive perks to maintain the lavish lifestyles they have become so used to.
The reason that the main political parties refuse to take tougher action against the bank’s bonus culture is because, unlike the rest of us, they are still in awe of the bankers and fearful too. Having shifted power in the economy so that London has become a global centre of the investment industry, they are afraid that even mild action will mean the banks will relocate elsewhere. This is nothing less than blackmail worthy of the Mafia. We may think we own the banks - but the banks believe they have us over a barrel.
As Philip Inman, a business reporter - rather than some left-wing activist - has said:
No one in their right mind would buy this argument if they had any semblance of self-respect or self-belief. But there is a panic in Westminster and among voters that we cannot pay our way without a steady supply of golden eggs. Bankers are feeding on that panic. It's our last great industry, they say, when really many of its innovations simply impose a tax on all of us and hold us back from developing a more sustainable future.I couldn't agree more about self-respect and self-belief, but part of the problem seems to be that comments like this from people who cover capitalism's workings every day are usually hidden away in the business pages. They are certainly not being articulated in a consistent way by the left, which is as weak now as at any time over the last three decades.
And so instead we hear infuriating statements like the one I heard John Humphreys utter this morning on Radio 4's influential Today programme:
So that’s it then. The phoney war is over. Politicians of all parties have accepted what we all know anyway, that there must be cuts in public services.”This was the introduction to a really awful interview with another banker, Sir Andrew Foster, who is deputy chairman of the Royal Bank of Canada and chair of a commission that wants to unravel the welfare state and return us to the means-testing of the 1930s.
Politicians of all parties may have accepted that there must be cuts in public services but we don't have to. That means the left needs to offer more analysis similar to this, which has come from Observer business journalist William Keegan:
In his Callaghan lecture… Chancellor Alistair Darling made a reference to James Callaghan's assertion during the crisis of 1976 that "You can't spend your way out of recession". But Callaghan later made it clear to me that that passage, by a speechwriter, was entirely tactical – designed to please a very rightwing US treasury secretary and the financial markets, whose lack of wisdom has been amply demonstrated by recent events.Outright rejection of the consensus on cuts within the three Westminster parties, which insist we must be made to suffer for what amounts to criminal behaviour by the banking and finance sectors, deserves to be part of mainstream debate. And it shouldn't just be buried between the letters pages and the sports coverage.
The truth is that the only way out of a recession is to spend your way out. If the private sector is depressed, the spending has to be done, or facilitated, by governments. That means deficits until normal service is resumed.