This is not just a devastating recession: this is the New Depression

Published 12 February 2009

There are many characteristics we associate with Gordon Brown - stamina, intelligence, cunning, resilience, ruthless ambition - but humility is not one of them. Yet his widely reported remarks about how the global financial crisis had forced him to re-evaluate his entire economic world-view are worth returning to and reflecting on, especially in the context of Ed Balls's comments that we are in the grip of a crisis that could be even more severe than the Great Depression.

"This is the first financial crisis of the global age," Mr Brown said at the World Economic Forum in Davos last month. "And there is no clear map that has been set out from past experience to deal with it. I'm reminded of the story of Titian . . . the great painter who reached the age of 90, finished the last of his nearly 100 brilliant paintings, and said at the end of it, 'I'm finally beginning to learn how to paint,' and that is where we are."

In other words, Mr Brown did not know what he thought he knew. The crisis that is besieging the British economy is labyrinthine in complexity and quite unprecedented. This past week, the number of unemployed passed two million, and the expectation is that the figure will rise inexorably to three million and beyond, the 2.6 million people who claim Invalidity Benefit notwithstanding.

According to the Daily Mail, the Prime Minister's comments "provoked ridicule". In fact, what he said was as significant as Alan Greenspan's concession in October, following the bank bailouts, that he had "found a flaw. I have been very distressed by that fact . . .Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief."

Messrs Greenspan, Brown, Balls, Darling, Bernanke, Paulson, King: they are all in a state of disbelief and stumbling in the dark. Debt-financed fiscal stimuli; the reduction of interest rates to zero; hasty, ill-thought-through tax cuts; a retreat into protectionism: these are the conventional weapons of battle being used in an economic war that, because of the interconnectedness of the global financial markets, is turning out to be quite unlike any other fought before. The reality of the situation is this: we are entering the New Depression. As Martin Jacques, who joins us this week as a columnist, writes in his essay on page 22, "the credit crunch is the most catastrophic example of market failure since 1945", but nobody has been able to understand, let alone grasp, its potential ramifications.

This is more than simply the end of an era - the end of 30 years of free-market fundamentalism, the end of the Anglo-American model of capitalism, the end of the Thatcher-Reagan consensus. This is a crisis that will utterly transform our politics, and there will be many victims. Before long, the detritus from the lives of the poor, the dispossessed, the unemployed and the homeless will lie scattered across our ravaged landscape. These are the very people, the weak and disadvantaged, who have historically looked to the state and to a Labour government to support them, to redistribute wealth as part of an attempt to create a fairer and more just society.

Yet this is a great moment of opportunity for the centre left, an opportunity to define a new kind of progressive politics, one that accepts the inherent limitations of the market and the indispensability of the state, a politics that recognises that the vacuous consumer capitalism of the new Labour years has enriched many of us, but also, somehow, left us poorer, more spiritually and psychologically bereft.

As Andrew Grice writes on page 10, there are many within the Labour government who envy the Conservatives' slogan of a "broken society", because it captures something of the general feeling of bewilderment at large in the country. Confidence has been shattered: companies cannot borrow, consumers cannot spend, unemployment is rising, there is no trust in the banks.

We do not believe that Britain is a broken society. It is a troubled country, however, whose politics is in urgent need of renewal. In the weeks and months to come, we will be publishing some of the world's best thinkers as we explain and analyse the crisis, as well as attempt to offer a way ahead. For what we seek - and the country demands - is new ideas, urgent alternatives to the failed politics of the post-Thatcher consensus.

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6 comments from readers

Gerry Myer
12 February 2009 at 17:36

Martin Jacques in this issue correctly observes that no one knows our way out of the present mire as Gordon Brown, with his Titian remark, appears finally to have realised. So the PMs criticism of the Tories as the "do nothing" party now contrast with an implied admission that he has been leading the "headless chicken" party

john181
13 February 2009 at 17:46

So, when consumers take on more debt than they can afford, fraudulently encouraged by the loan originators who sliced and diced this debt and sold it on to willing patsies as AAA rated investments, then there was no way any of the financial experts worldwide could anticipate the outcome? Pull the other one.

Some of us did basic research on the internet, applied some of the common sense we were born with, and sold our property and bought gold and short positions several years ago.

I don't consider myself a genius, just a realist with a deep skepticism whenever a politician or self interested economist makes a pronouncement. Maybe if there had been more people like me who know that there is no such thing as a free lunch this situation would never have developed.

Riaz Ahmad
13 February 2009 at 21:34

It is no time for playing politics. Real recession is destroying real economy and real lives. Every one with brain and influence must do his / her utmost to get the country out of economic doldrums. There is plenty of time for blame and shame, but now is not the time. Negative talk about economy adds fuel to fire.

Roland Baker
15 February 2009 at 17:51

"There are many characteristics we associate with Gordon Brown - stamina, intelligence, cunning, resilience, ruthless ambition" - is that the GB who is PM of GB? Ruthless perhaps but mainly self-serving, incompetent, weak and lacking a masterplan.

Among the culprits, I see that John Tiner, Hector Sants, Callum McCarthy, James Crosby (of the FSA) and Adair Turner and Digby Jones (formerly DGs of the CBI) are not mentioned.

This is not the first financial crisis of the global age but it is the worst and Gordon Brown must face up to his responsibility for it. 1974, 1981, 1991 and 2003 were in the global age and preceded this crisis. Nobody except Vince Cable learned from them and he was ignored.

From 1997 to 2007 our industrial policy was bankrupt and Gordon Brown made Mansion House speech after Mansion House speech selling out our principles to the pursuit of making the UK economy into the hedge fund and offshore tax haven of choice.

Thanks to Rory Bremner for quoting this on the Andrew Marr Show, BBC1, 15.02.09:

Gordon Brown, Mansion House speech, 2002.

"What you, as the City of London, have achieved for financial services we, as a government, now aspire to achieve for the whole economy."

And Gordon Brown's, Mansion House speech, 2007:

"The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success."

He learned nothing in those 5 years and will learn nothing in the next 5.

Gerry Myer
16 February 2009 at 17:24

Too true Roland; I wrote off Brown when he went along with Blair on Iraq - and that was before I read Tom Bower's biography of the walking disaster. Thanks to Andrew Marr on Sunday for bringing us the therapy of sanity in the forms of Vince Cable and Rory Bremner who is not simply an entertainer, satirist and unparalleled mimic but an intellectual of high calibre.

What a mad house we live in. Today "You and Yours" informs us that 30% of the food purchased is wasted yet those of us born pre-war never waste a crumb. And then Tony Woodley demands that the government supply loans for folk to buy cars!!. What happened to the idea of saving up to buy consumer goods? Gordon Brown as chancellor fostered instant gratification. How does that fit with his sanctimony about being a son of the manse?

John181 was probably wise to put his savings into gold. I too saw it all coming with agriculture and our manufacturing industry shrinking and reliance being placed on the financial sector which actually creates nothing. Every morning the doormat was littered with insistent offers of loans for -- holidays etc. Often companies offering loans held substantial amounts of my savings but one hand did not know what the other was about.

I predicted then that savers would end up paying the bill to meet the debts of the profligate. Interest rates are now below inflation. In time hyperinflation. Good old Gordon.

greytiles@btinternet.com
17 February 2009 at 10:43

This is not the end of capitalism and it will not change politics in any way apart from changing the party in power, here in the UK for perhaps two generations.

That's all