Government must prepare for crash

Ten years ago, the collapse of Lehman Brothers and the US implosion of property markets unleashed the worst global downturn since the 1930s.

Thursday, 20th September 2018, 4:51 pm
Ronnie Campbell MP Picture by Jane Coltman

That came out of the blue, but the Labour government avoided total meltdown with bank bail-outs.

Then we had the Tory-led coalition, which imposed austerity with massive spending cuts in public services. The only people not to suffer were the super-rich.

Now the markets are rife with rumours of another crash. And now is the time to ask whether, a decade on, the present Tory government has learnt any lessons or made any preparations for another crash.

The answer appears to be a resounding no – we have a divided cabinet and a party in power that is focusing entirely on Brexit.

The biggest lesson from 2008 is that prevention is better than cure. Once a downturn gathers momentum, the scale of intervention needed to reverse it becomes frighteningly large.

In 2010, as the economy was just beginning its recovery, then Chancellor George Osborne pinned his strategy on austerity measures to cut the deficit. He ignored the fact that austerity shrinks the economy. Output drops and tax income falls. It is a no-win situation.

He said that cutting public spending promotes recovery by increasing the confidence of the business community, but businesses invest when they see a market, and the market expands when consumers have money to spend.

The cuts condemned Britain to further years of stagnation, and we are still suffering the after-effects of lost output and earnings.

What a proper government needs to do now is reverse the rise in inequality. If too much wealth is in too few hands, the consumption base of the economy becomes too weak to support full employment.

With the current government still clinging to power, do not hold your breath.