In keeping with the time of year, here are nine lessons (but no carols) we’ve learned about the economy over the past 12 monthsby George Magnus / December 19, 2016 / Leave a comment
- Financial crises have deep, long-lasting effects
Had there been no financial crisis in 2007/08 with all the consequences that came with it, the economic outcomes—and, therefore, political history—of the last eight years would have been markedly different. We can talk about globalisation and income inequality until we are blue in the face, but these issues alone don’t explain what’s happening, and anyway, they pre-date the Lehman bust. This year, I think the financial crisis, which upended the world system, has gotten off lightly. The only real surprise was that it took so long for the political backlash to erupt as it has. There’s been no attempt to help people understand the systemic causes of the financial crisis or how we really might act to mitigate the possibility of a repetition. Many people, well off and not, have been left with a perception about collusion between bankers, captains of industry, politicians and other members of the “elite.” It’s not well defined, but nonetheless real.
There’s still time to change the way our economics and economic systems work for society but the politics of those with less benign intentions are knocking on the door.
- It’s “the political economy, stupid!”
The mantra of James Carville, Bill Clinton’s campaign strategist 24 years ago, needs a makeover. There clearly are circumstances in which people vote with passion against their fundamental economic interests, or at least subordinate them to other things.
In the Brexit referendum, there were and still are heated arguments about the economics of leaving. Remain’s short-term economic forecasts were wrong but three things have been corroborated: the money that was going to be saved for the NHS etc by leaving was a myth; the glacial negative consequences of leaving are starting to build, no matter how many sweet deals the government might strike with the likes of Nissan and so on; we might feel more confident if the government had a strategy to mitigate the corrosive consequences of leaving. Free trade mantras just won’t cut the mustard. In the US election, Donald Trump won the votes of people whose living standards will certainly not benefit from big tax cuts for the better off, or the consequences of trade conflicts which will be anti-growth and inflationary.