A waste of a good crisis? A decade after the crash, with Larry Elliott
After the worst financial crisis since the 1930s, Western governments sanctioned emergency action to support their economies. As the president of the European Central Bank, Mario Draghi, famously said in 2012, international institutions would do ‘whatever it takes’ to prevent financial meltdown. Central banks greatly eased monetary policy by cutting interest rates and launched emergency quantitative-easing programmes. This pumping of money into the economy succeeded in stabilising economic conditions and prevented the crisis deepening.
But critics argue that relatively little has been done since then to fix the underlying problems that precipitated the financial crisis in the first place. Have we failed to take the old advice, often ascribed to Winston Churchill, to ‘never waste a good crisis’?
With those extraordinary monetary measures still mostly in place – the official real costs of borrowing hover close to, or below, zero – there are heated debates about whether the major developed economies are healthier or weaker than in 2008. Many Western banks are better capitalised now. Financial institutions generally carry less debt, too. But with borrowings by governments, households and private non-financial businesses up, many commentators fear a different kind of credit crunch is on the horizon.
Still, most Western economies are bigger now than they were before the crash. Many have been able to generate higher, even record levels of employment. For example, the official rate of unemployment in the UK is at its lowest levels since the mid-Seventies. Some say we are in a new age of innovation, with AI and next-generation automation transforming our lives and workplaces. That’s in stark contrast to the gloomy predictions of many commentators when the eurozone crisis hit and economists talked about a return of secular stagnation. Yet business investment has never really recovered since the crash and productivity growth has been much weaker than pre-crisis.
What accounts for this coexistence of contradictory economic features? Does more need to be done to produce a solid and sustained economic recovery? The notion of an active ‘industrial policy’ has been rehabilitated in recent years across the political spectrum, particularly since the crash, but have any such state-led policies been successful? Which measures should be promoted and are there any policies that should be ditched? Should we lower our economic expectations, accepting stagnation as the ‘new normal’, not least because the health of the planet must take precedence over economic growth?
Larry Elliott, economics editor of the Guardian talks to economist and author Phil Mullan about what we should do about the future of the UK economy.