"Where everything is bad, it must be good to know the worst.” The idealist philosopher F.H. Bradley (1846–1924) had far bigger concerns than Britain’s economic condition, but his aphorism has a peculiar modern resonance when set against the country’s years of financial crisis since August 2007, when the tremors from Wall Street’s hedge-fund collapse signalled the financial implosion to come. It is not just that so much about the economy - the graphs, the trends, the figures, the whole damned atmosphere - has seemed so bleak. It is not just that the glimmers of light - a stat here, a report there - have been so meagre. The real frisson is produced by the sense that the bottom of the pit has yet to be reached, and may turn out to be unappeasably vast.
If only we knew. But we don’t know and can’t know. It is this combination of grimness and uncertainty that gives the “great recession” its peculiar character - for policy-makers whose every pulled lever induces only a splutter (if that), and for citizens who have had to adjust to a world of permanent debt, insecure employment, squeezed wages, rising bills and restricted horizons.
The dizzy aftershock
The reverberations from Wall Street hit Britain early, when the government issued emergency support to one of the country’s main mortgage-lenders, Northern Rock, whose iniquitous house-of-cards expansion had left it prostrate. After a febrile weekend of elite summitry, amid a share-price collapse and a rush of customer withdrawals that threatened the once-respected institution with collapse, Labour’s prime minister Gordon Brown and chancellor Alistair Darling decided to guarantee all deposits in the bank, later extending a minimum guarantee across all UK banks.
If August 2007 was the prelude, the drama in the chronology of the crisis arrived a year later, when a series of events in the United States - the government takeover of housing giants Freddie Mac and Fannie Mae, the sale of Merrill Lynch, the bankruptcy of Lehman Brothers - began to expose the unsavoury lending practices and cosmic indebtedness of leading financial institutions. Again, this stage of crisis was initially experienced in London as the local version of an America-centred shock, but as Britain’s leading banks buckled the government - propelled by Brown’s urgent memo-to-self, “recapitalise now” – took further emergency action: the nationalisation of Northern Rock and then Bradford & Bingley, a further extension of deposit support, a rescue package for the whole banking system worth £50 billion plus £200 billion in short-term lending. The Bank of England also launched a money-printing spree in March 2009 worth £75 billion (this turned out to be the first tranche of five, whose value to date amounts to £375 billion). Britain’s already vast public debt ballooned further, though wider damage seemed to be contained over the next year, and after a precipitous slump in output and tax revenues the economy returned to very modest growth in 2009–10.
The most expensive piece of elastoplast in history - until the ones to come - seemed for a time to have checked the flow of funds and confidence. Some analysts (such as the Sunday Times’s David Smith, in his fine The Age of Instability ) even began to refer in nervous retrospect to “the crisis of 2007–09.” But as the unsettling new lexicon – “credit crunch,” “deleveraging,” “quantitative easing,” “too big to fail” - became embedded in public discourse, so awareness began to grow on this side of the Atlantic too that this was becoming a watershed period likely to have generation-long effects.
As the financial meltdown “spread like an aggressive ulcer” through Britain’s high streets (as Frank Bongiorno put it in one of his astute post-crash assessments for Inside Story), the bright future that British political leaders had been competing to offer dissolved before their and their voters’ eyes. In a fervid pre-election atmosphere, the politicos suddenly needed a new story. What would a “recession politics” look like? No one could answer with certainty. The kids in the back offices, advisers or wonks, and even some of their ministers or shadows, could barely remember the last (early 1990s) recession; but anyway, this one is different, so maybe it doesn’t matter?
Perhaps, though, there was also something heaven sent for both main parties in the crisis: a Labour government that had seemed enfeebled under Gordon Brown could claim good crisis management on the biggest issue of all, while David Cameron’s Conservative opposition could mock Labour as the party whose carelessness had landed the nation with gargantuan debts.
In the event, Labour found that keeping the show on the road wasn’t enough. After thirteen years in office it had too much to live down, and the Conservatives’ qualified victory in the May 2010 election allowed them to reacquire a once-familiar glow of power when Cameron became prime minister. But by 2011, as the glow faded and Labour under its new leader Ed Miliband was struggling back onto its feet, new fronts in the political (and intellectual) argument over Britain’s economy began to proliferate with dizzying speed.