I think that both the low unemployment and the deep distrust can be directly traced back to the banking crisis. Start with the fact that the crisis began in private sector banks as a result of de-regulation of markets. The entire capitalist system nearly collapsed because of excessive individual greed and a few very well paid people chasing their personal bonus payment regardless of the risk to the collective. The system was then saved by government action, international collaboration and the creative accounting of central bankers. But those facts don’t square up with what is supposed to happen in most standard right wing economic models. Instead of dumping the theories we’ve had ten years of watching mainstream commentators try to twist the facts to fit the theory.
Their main effort has been to tell us that the problems really lie with governments for spending more than they earned and with ordinary people for borrowing more than they could pay. We’ve been constantly told that we must have austerity and as a result the Western world has seen ten years of steady destruction of services run by central and local government that genuinely benefit ordinary people.
Meanwhile billions – or to be more strictly accurate trillions – have been poured into the same financial sectors that created the problems in the first place. Quantitiative Easing at its crudest involves central banks electronically creating money in order to buy hard to sell and dubiously secure assets from private sector banks in order to give those banks lots of easy money and get them back into profit.
It is actually a very sensible idea to create new money in the depths of a recession in order to shore up the system and keep it moving. I don’t remotely blame governments for letting central banks do this. What staggers belief is the utter waste of the money that has been created. If you had £400 billion to spend on restructuring the UK economy what would you do with it? Or a couple of trillion dollars?
Instead of using this money to reposition Western economies and create a sustainable economic system the central bankers have been allowed to simply drip feed the money into the banks that created the crisis. So, whilst ordinary people have been tightening their belts and governments have been cutting back furiously, most of the banking sector has got back into the black and much the same people are making an awful lot of money out of taking risks with ordinary people’s money.
That is the kind of thing that makes voters cross. Whilst they might not understand the ins and out of QE most people can spot the obvious. The people who started the problem have got away pretty free and easy and are back to the good times. Those who had nothing to do with it are still experiencing the pain.
Unemployment is down because of QE. The places where QE was put into place earliest and hardest were the UK and the US. So those have been the places where unemployment came down first. In the Eurozone Angela Merkyl’s stubborn refusal to take risks with the currency meant that much of the EU had vicious levels of unemployment for far longer. Eventually they learned the lesson and thanks to QE the EU is now growing faster than the UK.
When successive governments pump money into an economy and keep interest rates close to zero for ten solid years it is hardly surprising that we have low unemployment. Conventional theory also predicts that you ought to start to get high levels of inflation and a drastic drop in the value of your national currency. That hasn’t happened to anything like the degree that theorists predicted. Normally when an economy is boosted to near full employment lots of workers ask for pay rises and lots of companies put their prices up because sales are booming and they can get a good price for what they have to sell. Inflation then takes off.
Two things have prevented that taking place. The first is that companies couldn’t easily put their prices up in any sectors where there is now a genuinely global market. There was just too much competition and the firms had to absorb any cost increases without putting up prices. The second factor was that workers are quite genuinely scared to ask for pay rises. With millions of people dubiously self employed via devices such as zero hours contracts it is a brave person who marches into the office of their boss and says that they want more money. With most employers now being small and medium enterprises the employees can also see all too clearly the risks to their job security if costs in their firm rises.
The result has been hard times even during low unemployment. Few people feel secure in their job. Real wages declined by 0.9% again last year. The safety net that used to be there from the state is now full of holes and not something anyone wants to rely on. Employees are not seeing the gains of an improving economy. Instead what they see is a daily struggle to earn enough to pay rents or cover mortgages that are 6 or 7 times the size of their salary. The average family is scared stiff that an income will be lost through illness or a company redundancy and is not impressed by the quality of service they are getting whenever they need the support of the state. The struggle to get your kids into a decent school or your elderly relatives a care or health package that works is very real.
In those circumstances any politician who tells voters that all is going well is in for a hiding. Electors are very good at spotting that something has gone wrong with the system and that there needs to be fundamental change. It is a lot harder to spot which version of change to go with. Lately any politician who sounds like they genuinely believe what they are saying stands a very good chance of upsetting the odds and getting themselves elected. It is only when they assume the mantle of office that it becomes clear which of them actually has some good solutions.
Donald Trump doesn’t. Day by day he gets more isolated as his far right nationalist nonsense fails to deliver. We can only hope that he succeeds in discrediting himself and his supporters comprehensively before he blows us all up or provokes even more horrible alternatives. Jeremy Corbyn is offering the British voters a radical left alternative that contains many elements of a policy that could succeed. I wish I could believe that it will. His determination to exit the EU and his failure to condemn the economic and political catastrophe of Venezuela don’t inspire me with confidence.
It is not enough to simply be opposed to the failure of extreme free market economics over the past ten years. We need politicians who understand that a global economy isn’t going to go away and we need conscious global economic and environmental management to deal with the new realities. We need politicians who understand how to shape and guide a global free market not someone who hasn’t intellectually got beyond the left’s alternative economic policies of the 1970s.
Until the need for global management is fully understood and acted on the system remains every bit as vulnerable as it was ten years ago. We just don’t know what form the next crisis will take or which politician will let us down next. I fear for the next ten years. We are going to have to work very hard to shape a better alternative.