Not much of a silver lining to the credit crunch

14 Oct 2008, by Nigel Stanley in Economics

I detect the start of ‘credit crunch – it can’t be all bad’ sentiments.

Some of it is entirely justifiable schadenfreude at those losing their telephone number sized bonuses, though I expect they will soon get round this. It’s a pity we cannot use the Freedom of Information Act to demand a transcript of the discussions in the middle of the night where Sir Fred Goodwin is reported to have demanded a big pay-off before agreeing to stand down from RBS. In passing let me award him a “They Just Don’t Get It” gong.

Of course it has brought much of the neo-liberal consensus crashing down, and discombobulated the advocates of the minimal state and deregulation. This is a real gain. Just as the banking crash will be discussed by economic historians for years to come, it is likely that it will also be seen as the end of a political era. Just as Thatcher and Reagan replaced the post-war consensus in the wake of 1970s stagflation and the oil shock, their time has now come to an end.

And to be honest I am sure I am not the only person to have been caught up by the sheer excitement of being in the middle of such momentous events.

But while there is some fun to be had from neo-libs and new-Labs nationalising banks, it is also causing hardship. It was of course right to nationalise Bradford and Bingley and arrange the shot-gun marriage of HBOS and Lloyds-TSB, but there will be job losses. B&B headquarters are in Bingley and the H bit of HBOS in Halifax. Even if all job losses are voluntary this will still hit their local economies. Many staff are likely not just to suffer job insecurity, but to have saved through share schemes that are now either worth nothing (B&B) or have tanked (HBOS).

All this is before we find out how deep the effect of the financial crisis will be on the ‘real’ economy – a phrase, incidentally, with which I’m increasingly unhappy, as it seems to me Bingley is a real place and people who work for B&B real people.

There is clearly going to be a recession and unemployment is going to rise, even if no-one really knows how deep and how high they will respectively go.

Yet I have heard and read people who think this will not be all bad. ‘People will start to be judged by what they do, rather than what they own’ and ‘there will be an end to shallow celebrity culture’ are just two sentiments.

Both are unlikely in my view. They are based on an assumption that the misery will be shared out. It won’t. Those who are unlucky enough to lose their jobs will find that benefits are very low – the result of the anti-scrounger consensus.

People look more to escapism when times are tough, not less. At least in the 1930s they had Busby Berkeley while we have Britney Spears.

Adam has already blogged about Conservative calls to end employment protection and Nicola has added their threats to the minimum wage. These are calls to increase inequality, not solidarity. And during the most recent recessions was precisely when the right managed to persuade people in the middle that they had more in common with the well-off than with the poor. They also showed that while the vast majority of the unemployed are decent law-abiding people, crime does go up when unemployment rises.

It may be that we get out of the coming recession in a way that does make for a fairer society and a stronger, more sustainable economy but it’s going to be an extremely rough and unpleasant ride.