current affairs economics

Why don’t we prepare for economic downturns?

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.

7 comments

  1. The main reason we don’t plan what to do in recessions is that we don’t know what will be needed. Recessions aren’t all the same, they have different causes so the same approach won’t work in all cases. Just as we can’t plan an economy because we don’t know enough we can’t plan recessions. That there will be another recession is undeniable but you could be like Vince Cable and forecast 6 of the last 2 recessions: useless.

    That said economists do talk about what to do in future recessions. Quantitative Easing wasn’t just thought of in 2008, it had been discussed in academic circles for years after the recession of the early 1990s. But it is highly technical so doesn’t lend itself to political discussion over the dinner table.

    Plans for pump priming public works or investment plans that a kept for a recession are pointless, either they are a worthwhile investment that we should do anyway or they are unnecessary and a waste of money.

    And as to the idea of cross party plans, the point of different parties is so we have different ideas. Consensus mush has fallen out of favour in Europe and Britain too.

    It also amuses me that given you want governments to pay less attention to GDP, now you want them to obsess more about it.

    1. There’s a lot of unnecessary negativity in that comment. What, parties can’t work together in a crisis? All the more reason to do so, because recessions can breed extremism and scapegoating. And to say that some things are too complicated to be publicly discussed is patronising and dangerous. What else should we humble folk leave to the technocrats?

      Sure, every recession is different, but the consequences are all too predictable – bankruptcies, redundancies, people unable to keep up with payments. Those are things we could talk about in advance. When the recession comes, how are we going to protect jobs? How are we going to ensure that the cost of any future bailouts are borne by those who took the risks and benefited from the boom times? Those aren’t impossible questions.

      By all means chortle away if you so desire, but I’ve written about this before – as long as we have a growth economy, stalling growth is obviously a bad thing:
      https://makewealthhistory.org/2012/10/29/the-end-of-recession-is-good-for-postgrowth-theorists-too/

      1. Have you noticed how polarised our politics is right now with Corbyn’s Labour looking to create as much economic problem as possible to engineer a crisis in capitalism to bring their radical leftism to power . Bipartisan solutions are out for now no matter how much we want them.

        We do learn from recessions. After the 1990s recession there was a lot of work on how unemployment had a long term effect so that when the Great Recession started lots of companies looked to cut wages rather than staff. This wasn’t a government initiative. Many even gave the staff that choice, 10% wages cuts it 10% staff redundancies and the staff chose pay cuts. It happened at the firm my wife was working at.

        What we don’t have is some great organised process where self important people can pontificate at everyone. Good thing too l say.

        1. Isn’t that the Today Programme you’re describing?

          Of course we learn from recessions, and businesses and economists will do all sorts of research and modeling to prepare for it. But why the silence from the people who will make the biggest decisions in a time of crisis, that’s what I’m curious to know.

          You’re right about the current circumstances though. The parties can’t agree on anything internally, let along play nicely with others. So my hopes are more general than specific right now. I would like there to be a time where such a thing is possible.

          1. There may well be war gaming of recessions taking place in the BoE and Treasury but one thing about war games is you don’t use your actual leaders since if what they would do in a crisis came out then your opponents would use that to their advantage. This is what was done in Cold War nuclear scenario planning, and would be the same here, just your opponents are capitalists rather than communists.

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