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|I wasn´t right. But that´s OK|
The Guardian - January 3rd 2009
“What, pray, is all the fuss about?” asked a sage columnist in these pages on the first anniversary of the credit crunch (“Crisis, what crisis?”, Guardian August 12th 2008). In response to claims that this was a great crisis of capitalism he even deployed the word “phooey”. That sage columnist was of course yours truly, and it is safe to say that that article will not be pasted into my scrapbook entitled “Most Prescient Pieces”.
My argument was, of course, correct in so far as it looked in the rear-view mirror rather than at the road ahead. The striking thing about the credit crunch’s first year, both in
Nor, indeed, does any impact that has yet been seen make the current economic situation worse than the recession of the early 1990s, nor especially that of the early 1980s, when unemployment was nearly double today’s level. Nevertheless, it is no longer possible to be as sanguine as I was in August. We are still far from being in a “worst since the 1930s” situation, but there is no doubt that during the past three months all the developed economies, and many developing economies, have suddenly frozen up. How bad might it get? Let’s be honest: we don’t know, because we can’t know.
It is worth, however, dwelling for a moment (as I have been doing for many moments, especially since mid-September) on why I was proved so wrong. There are, I think, two reasons beyond simple idiocy or complacency.
One is that I may have spent too much time thinking about
The collapse of our financial pyramid scheme could, therefore, be absorbed, I thought, thanks to the happy fact that we could learn from
However, our drama now feels worse than
The position I took was, in effect, an attempt to argue that we risked talking ourselves into recession, through media scare-mongering and through remarks such as Mr Darling’s subsequent Guardian interview on August 29th when he warned that
Now, fear has plainly taken over. Companies, households and naturally banks have all decided that cash must be king, that to be in debt is to risk death, and that new commitments are best avoided, for now. Individually, this is perfectly rational. Collectively, it is disastrous. Or, rather, to avoid being a scare-monger myself, it brings about the very thing we are afraid of: a nasty recession.
We cannot predict how deep the recession will be nor how long it will last, because it all depends on psychology. Economics is not about numbers and models and mathematics; it is about human behaviour, about our reactions to opportunities, risks and fears.
Messrs Brown and Darling are right to be trying hard to counter that deflationary psychology by throwing away the old fiscal rules, by cutting VAT and by expanding public borrowing. Like in
Meanwhile, note, this is not—yet—a true “crisis of capitalism”. That would arise if confidence never seems likely to return, if unemployment has soared and if hope seems truly to have been destroyed. It cannot be ruled out altogether. But let us, as
Bill Emmott is the author of “Rivals—How the Power Struggle between