The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [1]
This certainly hasn’t been the case for at least a generation. Western economies face a staggering set of problems, all politically difficult to tackle. We face them in the context, too, of global uncertainty—of an unstable world where the balance of power is shifting and in every direction there seem to be new threats. At present we lack the analysis and the institutions needed for addressing the seemingly intractable economic and social challenges, and even more fundamentally the political framework for debating what to do. While majorities in many countries report in opinion polls that they don’t trust politicians and establishment institutions, there is no obvious political process or vision that will allow us to reach a democratic agreement about what to do. Politics seems to either reduce to questions of managerial competence—which party or leader will be most efficient?—or to bitter partisanship—where each party attacks the other regardless of practical matters. So I also address the politics of Enough, the kind of debate we’ll have to hold about the economic challenges and how to respond to them.
This is in some ways even more urgent than the economic issues, because past experience in times of great change and uncertainty suggests that irrational and violent responses can hold sway if everyday politics do not seem to offer a path out of current difficulties. The economic parallels between the post-crisis downturn and the Great Depression are not encouraging if they’re an indicator of political parallels too. It has become a truism to say that the old left-right division in politics has become outdated. I’m not sure that’s wholly true, but it is certainly the case that neither left nor right has a clear map of the new political terrain. However, by the end of this book some of the profound political choices ahead of us will be a bit clearer.
THE ECONOMIC CHALLENGES
Although, as I write, there are tentative (and perhaps temporary) signs that a recovery is under way, the banking system is still being propped up by massive government help schemes and partial state ownership. Indeed the financial crisis might have further to go, depending for instance on whether European governments such as Greece can repay their debts, or how high unemployment stays and for how long. To say the economy is in a mess is an understatement. Any recession is unwelcome because people lose their jobs, and this has been no ordinary recession. The banking crisis made it the deepest since the Great Depression. The recovery will be a long, slow haul, and there will be a legacy of spending cuts, tax increases, and a huge government debt burden in many countries. The debate about public spending is not whether it will have to be cut, but rather how much and how quickly. It is hard to see where jobs will come from for the next few years.
Financial crises have happened frequently throughout the history of capitalism. Many are relatively brief and small in scale, but a few do go down in the history books as major catastrophes, from the South Sea Bubble to the Great Crash of 1929, to our own recent experience.1 Part of the continuing debate about the merits of capitalism concerns precisely this constant vulnerability to crises, and to boom and bust. Market economies are unstable. The price of increasing prosperity is uncertainty about what the future holds. But even though the financial crisis has prompted many people to revisit this longstanding issue of instability, there are many other deep problems facing all the world’s richest economies at present.
For, as if the fallout from the financial crisis were not enough, the developed world has a rapidly aging population, people whose pensions and health care will also add to the financial burden on those in employment. The proportion of