When confronted with an uncertain future, writers who claim to have seen through a window into the next decade find it easier than usual to make the bestseller lists.
Some futurology books are gloomy and some are optimistic. Britain’s prime minister probably did not read any of them before coming to the conclusion that a strong sense of belief and a sunny disposition could cure most ills.
Many readers will be familiar with the current argument between the “gloomsters” on the one hand, who worry about borrowing more money, and those, like Boris Johnson, who believe it is possible to blast through a no-deal Brexit and turn longer-term stagnation into turbocharged growth with barrels of borrowed funds.
Back in 2009, just as the UK was climbing out of recession, the then prime minister, Gordon Brown, confronted his chancellor, Alistair Darling, urging him to produce a budget that displayed a level of confidence sufficient to persuade consumers and businesses to forget about the financial crisis and carry on as before.
Unfortunately for Brown, only he and a smattering of hardcore Keynesian economists believed that it was right for a country as financially troubled as the UK to spend its way out of trouble.
Brown failed, and Darling produced a budget that slashed public investment. Darling’s successor, George Osborne – in many ways the UK’s worst chancellor of the postwar period along with Ted Heath’s finance chief, Anthony Barber – went further, with cuts to public services and lower welfare spending.
Brown was proved right and the institutions that failed to back him – the International Monetary Fund, the OECD and many of the UK’s domestic thinktanks – were forced to eat humble pie, if not apologise.
In one sense, Brown was behaving like a financial trader. He knew that Britain’s stock was artificially low and any investments at that stage would reap strong returns.
Infrastructure could be bought cheaply and the money to fund it borrowed at rock-bottom rates of interest. More than that, businesses had entered the financial crisis geared up for neverending strong growth. They had the expertise and people to carry out the work. What better than to keep the wheels of the economy turning and tax receipts pouring in? Austerity be damned.
Banks have the reserves to lend to small and medium-sized businesses: sadly, there are no takers
Ten years on, the same battle is raging. The question must be: does the analogy with 2009 still hold?
The only element that remains the same is the rock-bottom borrowing rates. Otherwise, times have moved on and not for the better – at least not for those who ask why Britain cannot borrow more, even increasing its debt-to-GDP ratio above the current level of 83%.
Businesses, and especially those that export, have had a torrid 10 years, putting them in a very different position to where they were in 2009. They haven’t invested much in new plant and machinery. A glance at the official figures for investment shows that they haven’t done much more than upgrade their IT equipment. Training budgets have been cut to the bone and the government’s only response to this lamentable trend – the apprenticeship levy – has so far failed to have any meaningful impact.
Labour says the government should borrow and channel the funds into the economy through regional development banks. But there is no evidence that the financial services industry is in as bad a state as it was in 2009. It has the reserves in place to lend to small and medium-sized businesses: sadly, there are no takers. Add to this picture the widely held concern that the global economy is about to go through troubled times, and the 2009 analogy hangs by a thread.
Is this situation merely determined by the uncertainty of a no-deal Brexit?
Studies such as one from the Washington-based Peterson Institute last week show that wage stagnation in the US (and therefore probably the UK too) is more likely to be caused by technology hollowing out the market for skilled blue- and white-collar jobs rather than competition with China and the Far East. This tells us there are fundamental issues to confront aside from the loss of access to our biggest trading partner, the EU.
Britain is better placed than most countries to tackle the problems confronting developed-world economies, from deindustrialisation to the climate crisis, but Johnson’s incoherent spending in pursuit of past glories – from employing more police to funding more shipyards, and all with borrowed money – only adds to the instability of the economy and the sense of gloom.