The public narrative of historical circumstances can have a much more profound and long lasting effect on society than the historical circumstances themselves. In no field is this more true than in economics, whether your foundational memory is the 3 day week stagflation of the 1980s, the dot-com bubble disaster of the early 00s, or the aftershocks of the Great Recession in 2008.
Each of these crises successfully reinforced the burgeoning economic narratives of their time – the 1980s so deeply wounding the Keynesian consensus that the foundations established with that recession still shape the way we see economics today.
With a subprime mortgage crisis in America, international financialisation, overexposure to risk, and irresponsibly excitable journalists like Robert Peston, the 2008 financial crisis was a failure of our economic system brewed in the USA and distributed internationally.
The prevailing narrative at the time, however, is that in fact it was overspending by the Labour government, in tandem with greedy banks, that caused that collapse in confidence. Never mind the fact the majority of said spending was a result of, not a prior to, the crash: proliferate public spending was deemed to have caused the screeching collapse of American mortgage securities.
Yet, with the catastrophic effect on those limited markets, it is neither the private banking sector nor the Labour Party who bore responsibility for the long term economic harm inflicted on the UK. That lies purely at the doors of the Conservative party and Liberal Democrats.
The austerity regime that followed that government’s election, centred on an objective to “achieve [a] cyclically-adjusted current balance by the end of the rolling, five-year forecast period”, and ensure national debt as a percentage of GDP would be falling (both objectives would later be enshrined into Labour’s Fiscal Credibility Rule), devastated public services, benefited the rich, and stunted the UK’s growth and wellbeing for the entirety of the 2010’s.
None of which was necessary. High national debt had absolutely nothing to do with the issues at hand – the treasury was punishing the country for its own positive interventions into an economy in free fall.
Fast forward to 2022, and Conservative Chancellor Rishi Sunak is refusing to intervene in the cost of living crisis, induced by hiked up gas prices in the wake of the Russian invasion of Ukraine, and microprocessor shortages due to China’s insistence on a zero-COVID strategy.
Once again, we find ourselves in a situation where circumstances beyond our control are threatening British wellbeing and economic stability. But ask Government minister Jacob Rees-Mogg, and you’ll be led to believe that Government spending is what causes the risk. And if you ask Rishi Sunak, he cannot raise welfare in line with inflation because Treasury computers only allow him to change them once a year (the logic being that the they were changed last October, where Sunak cut Universal Credit by £1000 a month)
Government ministers have been trotted out to the airwaves to insist there is no more room for spending, that we must be considerate of Government debt, and that we must be careful not to make the problem worse – clearly indicating a theoretical “oversupply” of cash in the economy as the cause of inflation, rather than a sudden dearth of real resources like fairly priced energy and computer chips.
The spectre of 2008, unreconstructed by a Labour Party which still fetishises deficit reduction and hegemonic Conservative Party, lurks overhead, as relatively high levels of public debt are used to insist to journalists and members of the public that there is no money left. However, just as in 2008, the threat is not of the illness – price caps, rebates, tax cuts are all available to the government to ensure that households up and down the country are insulated from the chaos from abroad – just as they were in 2008, and more recently, in 2020.
The real economic threat is the new austerity, the austerity of “non fiscal” interventions, of the mythical scarcity in the government’s money supply, and of higher signalled interest rates from the Bank of England. A truly counter austerian public economics – which acknowledges and disrupts the myths of the past, pointing clearly to the power of the state to intervene and the lies told by reactionaries like Sunak and Johnson – is the only way to avert the oncoming disaster.
Deconstructing the 2008 financial crisis, taking back the wins that Labour never took from Gordon Brown’s significant and radical interventions, would win back confidence on the importance of public spending and public debt to an economy in crisis, as we find ours in now. Observing the rapid action by Rishi Sunak – not, as he claims, made possible by the austerity programs of his predecessors, but instead because the British public believed in their necessity at a time of mass camaraderie – could show that the claims he makes on welfare systems being too slow to update are nonsense.
The greatest prize still, would be awarded following the toppling of Thatcher’s own “taxpayer” myth, that we are all atomised consumers of society, a framing so reductionist and ubiquitous that even the left-most Labourite will indulge in it.
But what would our economic discourse look like if we resisted the urge to aimlessly follow our opponent’s framing and version of events? Right now, it is some perverted sentiment toward the taxpayer that will see nearly 100,000 civil servants made unemployed during a recession. It is the idea that our want to preserve one another’s livelihoods that is being weaponised against us to say we must brunt the sharp end of the energy crisis. It is the shadow of 2008 that still haunts Labour’s credentials whenever the party needs to commit to radical action.
Who will be to blame for the 2022 recession? The answer to that question is what will shape politics for the next decade.