Just at the moment it is moving very strongly in the direction of fast forward. Ten years of massive quantitative easing pumping money into the system have been accompanied by ten years of interest rates that take money from savers and subsidise borrowers. We’ve also had decades in which the state spent more than it earned which also has a huge expansionary impact.
When you put that kind of economic stimulus into the economy sooner or later the world economy has to turn around. Then as the economic upswing was just entering full force along came Trump and cut taxes and created an even bigger government deficit. In those circumstances it is hardly surprising that the US economy is growing at 5% a year.
Which might be fine if that growth was even remotely stable and sustainable. Unfortunately, it isn’t. The tanker is heading at full steam towards some very dangerous rocks.
The first problem is that the economic stimulus measures which rescued the world economy from near disaster weren’t well structured. Instead of using 3 trillions of dollars, 400 billion pounds and billions of Euros to re-focus the economy it was simply pumped into the financial system. Indeed what was done has been much worse than that. Whilst the financial system was treated generously and allowed to get back to business as usual without major structural reform large elements of the fundamental core of the economy have been subjected to a decade of austerity. Long term stable prosperity depends on things like an educated workforce. Austerity has hit education hard. Long term stable prosperity also depends on infrastructure. Yet routine spending on simple things like maintenance of roads, railways, and public buildings has been cut to the bone.
Then there is the huge problem of adapting the world economy to work in better harmony with the global environment. We are currently pumping more C02 into the atmosphere than ever before despite the fact that we know it is already causing significant problems for the environment. We simply don’t know what will happen to the world’s climate when we finish melting the polar ice cap. We do know that melting is continuing and extreme weather events are already getting worse. We do know great chunks of the Great Barrier Reef have already been bleached by increased acidity and increased temperatures. The world economy is continuing to consume and throw away increasing quantities of plastic. To the point where the quantity of plastic that has ever been made is about to be doubled in the next 20 years. Our seas are already choked with the mess and yet we are on schedule to double the quantity on every beach and in every part of the ocean without any means of removing that mess.
It is easy to say that we need to change over to a fossil fuel free and plastic free economy and do so quickly. It is a lot harder to do that and the consequences of not doing so are accumulating rapidly. There is genuine opportunity for intelligent economic expansion as we heavily re-orientate the world economy onto new and sustainable technological models. There are inevitable limits on economic growth if that growth simply depends on consuming more of the environment.
That speaks to the real core problem which is an intellectual one. The old way of doing businesses has become unsustainable but the new ways have yet to achieve sufficient intellectual acceptance amongst enough of the people in power. Ten years ago free market capitalism proved that it was not capable of managing itself. When all meaningful regulations were removed from the world banking system and we had a completely free market in finance the result was a massive boom followed by a massive crash. Instead of learning the obvious lesson that the system needs guiding and managing locally, nationally, regionally and globally there has been a serious intellectual failure to think properly about what happened. There has been a lazy assumption that the crash was just a blip and there has been a lazy assumption that things will just go back to the way they were.
Myths about the economy have proliferated and fond illusions have replaced hard thought and even harder planning. One myth has been that the 2008 crash was caused by a profligate public sector in which government spending exceeded income. As a point of fact the crash was solely generated within the free market world of financial speculation. Public finances went wrong because the state had to bail out the private sector and the recession caused by the bust in that financial sector worsened those finances. Another myth has been that countries can get through their economic problems by shutting down their borders and looking after their own interests. Economic protectionism always works for a few months. It always fails in the long run. We live now in a globally connected economy. So we need more international management not less. You cannot operate a world economy and live in a single interconnected world environment without global political management. There is no going back to the world of the self sufficient nation state that can shut out the rest of the world. There is only an option of going forward to a better planned world economy. It was hard enough to deal with the last crash but political enemies like Gordon Brown, George Bush and Barak Obama worked together to get us out of the mess. That kind of international collaboration is highly unlikely to work in a world where Donald Trump is solely interested in the narrow financial interests of one small group of wealthy Americans.
We have used up huge resources and put people under huge strain fighting the last crash. That leaves us horribly vulnerable if/when there is another. One of the key things that has happened as a result of the fall out of the last financial crash has been that it has become obvious to a lot of people that something went wrong. A lot of people have lost confidence and optimism about the future. That has left them looking for radical solutions in some very strange places. Those of us who are trying to articulate the kind of direction that the economy and our society needs to move in if it is to survive and prosper are now faced with fierce resistance from those who find it easy to gain popularity by telling people that they have the simple solution to all their problems. Nationalism.
Those people have tapped into one really important point. As the global economy gets bigger and more powerful and as billions more people compete to capture business and jobs there is a danger of the ordinary person being swamped by global forces that they cannot control. The local economy becomes more important to the individual not less in a world of globalisation. It really is necessary for national governments to put serious effort into ensuring that no communities are left behind, that those communities have strong local decision making powers and that they can put into and kick out of power people that they trust from their own local communities. Instead of strengthening local government the UK government has steadily stripped it of power, influence and finance. Instead of investing in regions it has neglected them. Instead of regenerating declining inner cities and building new housing and schools there it has let them rot and poured infrastructure investment into London. Not surprisingly people in post industrial cities that reek of that neglect are easy meat for those who want them to believe their problems are all caused by foreigners. The most effective way of challenging that is to provide those communities with a programme of serious investment in the next phase of technology so that we site plastic free, fossil free small flexible businesses and the science and education that creates them in places like Stoke on Trent and Sunderland.
The super-tanker is currently steaming ahead on full power towards the next economic crash. What happens when Trump’s tax cuts have to be balanced by government spending cuts? What happens when interest rates rise and debtors start defaulting? What happens if Trump’s trade wars keep getting bigger? If our problems are as acute as they are at the top of an artificially created boom what will they look like when we return to a period of downturn or hit another huge crash?
The time has come to radically change the way we manage our economy, our society and our environment. That is the only way to stop the tanker hitting the rocks.