The economy is cyclical. As currently constructed, it expands and then inevitably enters a period of contraction. There were recessions in Britain in the 60s, 70s, 80s and the early 90s. Then there was a longer gap than normal, leading some people – including chancellor Gordon Brown – to boast that they had broken the cycle. We now know better.
We also know that, ten years on from the last crisis, the wheel is turning again. The economy will tank at some point. It’s just a matter of when.
This is still news to many people. I occasionally mention the business cycle in talks, and it reliably prompts a raising of the eyebrows in large parts of the audience. I get the impression that it’s not common knowledge. Recessions are still considered an aberration, a glitch, rather than the systemic phenomenon that they are.
We don’t talk about it, so perhaps that’s not surprising. No politician will warn about recession, as the opposition will accuse them of ‘talking down the economy’. While downturns are inevitable, the timing of them is unpredictable and lots of things can trigger them. Nobody wants to accidentally start one with a self-fulfilling prophecy. So there’s never any public debate about recession. We bumble along as if it will never happen, and then we panic when it inevitably does.
Because of this silence, we never get to talk about the best ways to handle a recession. It’s somehow outside the bounds of democracy. There’s no section in party manifestos, no proposals or back-up plans we can consider and vote on. When the recession comes, the party in power just does whatever it likes. Last time around that involved handing billions of pounds to the banks, slashing government spending and ushering a new age of austerity.
There are lots of different responses to recession. Some countries chose tax rebates instead of quantitative easing – giving money to ordinary people instead of banks, and thus stimulating demand more directly. Germany and others supported part-time working, helping firms to keep people in work on reduced hours rather than making them redundant. Several countries ran scrappage schemes to prop up car sales, but others chose to support solar hot water, insulation or home improvements instead.
Recessions require difficult decisions. Governments find themselves choosing who to protect and who to leave to fend for themselves. Some industries will be considered critical to the national interest, and others won’t. The treasury and the government will no doubt have plans in place, but we’re not involved. Isn’t there any way of discussing these questions in advance? Couldn’t we draw up cross-party contingency plans? There must be a better way of dealing with recession than denial and then panicked decisions behind closed doors.
This is particularly important for Britain right now, as we walk the Brexit plank. Nobody knows what Britain’s economic standing in the world will be by this time next year, and the uncertainty is enough on its own to undermine confidence. I won’t list the various warning signs of recession, you can find them easily enough in the business pages. But it is worth considering what it could mean. Interest rates are already low – too low for the Bank of England to stimulate borrowing with a substantial cut. Debt levels are already high. Having an independent currency was an advantage during the last crisis, when the Euro almost collapsed. That won’t be true this time, where the value of sterling outside of the EU is uncertain. On the political front, a resurgent far right could very easily capitalise on a financial crisis.
I don’t see much chance of the government talking openly about it, and the popular press is likely to throw such questions in the denial basket of ‘project fear’. But we can talk about it in families and households. We can raise it in workplaces, schools, charities. Churches should talk about it, and how they can support the community when hard times comes. Local activists can start talking now about how to build resilience and support local business. Most of all, we shouldn’t be surprised by it.
- feature image by Gian Reichmuth