Vincent Cable, the Lib Dem's Treasury spokesman, has gained a lot of kudos for warning several years ago that NuLab's 'British Economic Miracle' would end in tears. You can see him becoming the Chancellor in an emergency 'National Government' if the economy should hurtle even further over the proverbial precipice in the next couple of years. Furthermore, he would be a popular choice with the public for the role.
However, for me the adulation over Saint Vince is tempered by the fact that he is a leading member of a party that sabotaged in Parliament attempts to put the Lisbon Treaty to a referendum. I am pretty sure that a Lib Dem presence in government would mean serious attempts would be made to join the euro. There would be serious efforts to argue that Iceland's economic meltdown in late 2008 was caused by it not being a member of the EU/eurozone. Just like membership of the EU/eurozone stopped riots in Greece during late 2008...?
If, as Larry Elliott argues below, VC helps to sustain an atmosphere of 'New Seriousness', all well and good. However, this should not degenerate into mindless adulation...
We're doomed: he told us so: Britain's financial meltdown was predicted by one politician back in 2003.
Larry Elliott,The Guardian, Saturday 4 April 2009
It was November 2003 and Gordon Brown was in his pomp. Alone among the major developed nations, Britain had sailed on through the global downturn that followed the collapse of the late 1990s dotcom bubble. The chancellor liked to boast of the strength of the public finances and of how he had abolished boom and bust. He was certainly in no mood to take any lip from Vince Cable, the Treasury spokesman for the Liberal Democrats, when he had the temerity to suggest in parliament that the only reason Britain appeared to be doing so well was that consumers were taking advantage of rising house prices to borrow as if there were no tomorrow.
The response from Brown was an object lesson in complacency and hubris: "The honourable gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy."
The financial and economic crisis that has unfolded rapidly and ruinously since August 2007 has shown that Brown would have done well to heed the warning. Britain's dangerously lopsided economy meant it relied heavily on two engines of growth – the housing market and financial services – and when these both stalled a hard landing was inevitable.
Cable recounts this Commons exchange in his account of the financial crisis with just a hint of relish, but it would be wrong to see The Storm as an exercise in "I told you so". He has the occasional dig at Labour and the Conservatives but his book is analytical rather than party political. Where credit is due – as in the government's much-copied bailout plan for the banks last October – Cable is scrupulous in giving it. But he is scathing about the PM's claim that Britain's problems are imported from across the Atlantic. True, Britain had 16 years of uninterrupted growth with low inflation, but this was mainly due to Chinese workers flooding the global economy with cheap manufactured goods, and recycling the resulting trade surpluses into the City and Wall Street. As the book notes: "Without diminishing in any way the global origins and nature of the crisis it is also necessary to debunk the self-serving myth that Britain has, in Gordon Brown's words, created an economic environment of 'no more boom and bust', and that the country is uniquely well placed to ride out the global storm."
On the contrary, Cable argues, Britain's housing and debt bubbles have been larger than elsewhere; the government has less room to cut taxes or increase public spending because it has borrowed too much in the good times; and an economy far too dependent on financial services has left the UK exposed to the "full force of the gale that is blowing through international financial markets".
All that, sadly, is true. Both the major parties bought into the fantasy that the City represented the future and manufacturing the past. The motivation for the Conservatives is easier to fathom; they had to have an intellectual justification for the decimation of industry they presided over in the 80s. Labour's conversion to the idea that the City was the manifestation of all that was good about Britain – buccaneering and innovative – was more complex. In part, the defeats handed out to previous Labour governments fostered a belief that the party had to make itself financial-market friendly. It was also the case, though, that many Labour ministers – few of whom have any real experience of life in the private sector – became starry-eyed at the money being made in the City.
Cable, who is unusual for a modern politician in having some hands-on experience of life in the private sector – he worked as an economist for Shell – says that a "brutal reappraisal" is now under way. "Brilliant financial innovators have been recognised as greedy or reckless or incompetent, or all three. Self-proclaimed, buccaneering entrepreneurs in the banking industry have been reduced to rattling a begging bowl and are dependent on the government bailing them out."
As for what happens now, Cable says the reform camp has three distinct strands. There are the "New Interventionists" who see the disaster as evidence of supine, even non-existent, regulation and want to replace the Washington consensus – liberalisation, deregulation and privatisation – with something akin to the mixed economy of the 50s and 60s. Then there are the "Old Liberals", who say that some improvement in regulation is needed but that, on balance, the good markets outweigh the bad. Cable puts himself somewhere in the middle: he believes that financial markets are subject to repeated bubbles, panics and crashes, but maintains that there are benefits from markets in goods and services, and from trade. Don't throw the baby out with the bathwater, in other words.
The final chapter of The Storm fleshes out what a Liberal Democrat reform package would look like. Banks would have to hold more capital in the good times, thus limiting the amount they can lend. Cable would also like the Bank of England to "lean against the wind" when setting interest rates. Most controversially of all, he says Britain's banking sector should be split in two: there would be highly regulated high street banks and riskier investment banks, hedge funds and shadow banks that had no state guarantee. Cable clearly regrets that wheelerdealers such as Adam Applegarth at Northern Rock and Sir Fred Goodwin at Royal Bank of Scotland were ever allowed to turn these pillars of respectability into debt factories, and he wants banks to return to being safe but boring.
Financial deregulation in the 80s and the transformation of building societies into banks in the 90s changed them rapidly from being solid and respectable into being aggressively competitive but risky. Cable says high street banks should become the equivalent of highly regulated utilities, having the simple job of recycling savings as loans to home-owners and small businesses. It is hard not to sympathise.
I have some quibbles with The Storm – not least the naff cover photo, which makes Cable look like Heathcliff without the hair. More importantly, he rather glosses over his conversion from enthusiasm for the European single currency to becoming "a little Eurosceptic in recent years", and has a perhaps naive belief that globalisation and free trade will survive the crisis. His determination to show political kinship with the economist of the moment means that he tells us twice that John Maynard Keynes was both "Liberal (and liberal)" .
But these are minor blemishes. For a book that has obviously been turned around quickly in response both to the deepening of the crisis last autumn and Cable's growing reputation at Westminster, The Storm is remarkably error-free and well written.
In these difficult times, some may cavil at paying £15 for a book of 157 pages. But anybody with an interest in the causes of the deepest economic crisis since the great depression – and that is most of us these days – can easily digest it in a single sitting, and be much better informed as a result.
Another well-known Jeremiad who has been proved right over the economy is John Gray. I have mixed opinions on his writings, which have gone over the years from Thatcherism to Red Toryism, with a strong eco-doomster streak (another Eco-Doomster For Nuclear Power type, although he lacks the self-righteousness of James Lovelock, Mark Lynas and George Monbiot). However, he is always interesting (although when he wrote in The Guardian back in the mid-90s, he tended to overuse 'defining moment) and definitely should be seen as a prophet of the 'New Seriousness'.
'We're not facing our problems. We've got Prozac politics': The philosopher John Gray is riding high as one of the few thinkers to have predicted the current economic chaos. Here, he tells Deborah Orr how we got into this mess – and how we might get out of it
Deborah Orr, The Independent, 11 April 2009
It's universally recognised that some people benefit hugely from recessions. But no one really expects those beneficiaries to be philosophers. John Gray, thus far, has had a fabulous recession, not least because he was one of the few people who forcefully predicted it, notably in his 1998 book False Dawn: The Delusions of Global Capitalism. This week, with perfect serendipity, Penguin has published Gray's Anatomy, a collection of his political writings over the past 30 years. Gathered together, Gray's essays, articles and reviews offer a very handy historical and philosophical guide to how we all got here, in a hefty, readable slab of glorious prescience.
Gray, who is now 60, withdrew from his sparkling academic career not much more than a year ago, in order to write full-time, and he still gets a bit of a kick from his new-found freedom. He grandly insisted on booking a room in "the Wylie building" for our interview. This, I think, hints a little at pleasure in being represented by Andrew "the Jackal" Wylie, the pre-eminent transatlantic agent of his generation, and a lot at habituation to having well-appointed institutional rooms at his disposal. Gray moved to Bath, with his wife Mieko, a dealer in Japanese antiquities, around the time when he surrendered his most recent post, as Professor of European Thought at the LSE. So the plush Bloomsbury office now serves as a London base.
One might forgive Gray, as he sits in Georgian splendour sporting a rust-coloured corduroy suit, for being a little bit bumptious, and slightly prone to self-regarding cries of: "I told you so." But such egotistical grandstanding would be a betrayal of everything Gray has ever believed in, if he could be accused of ever having "believed in" anything. Gray eschews all "isms", except realism, and he admits, with some shame and an awareness of the dreadful irony of life, that "a surviving element of utopianism in me" presently leads him to hope against hope that realism – and the establishment of a reasonable modus vivendi – might possibly be the coming thing.
Long mistaken for a pessimist, Gray instead has a talent for calling an ideological spade an ideological spade. His intellectual speciality, or his "recurrent habit of enquiry", as he puts it himself, "is to try to identify features of the present moment, which are taken to be unshakeable by conventional opinion and established interpretation, but are not, in order to try to find out the interstices or weaknesses or fragilities". It's a technique that has served him very well.
However, Gray always does his best to respect the politicians who wield the ideological spades, preferring those who are "willing to get their hands dirty" and involving himself in the think-tanks that nourish them. This guiding principle dictated that he was an early supporter of first "the Thatcher project" and then "the New Labour project", even though many people would argue that one or both of these contributed vastly to our current predicament.
Again, it's all about realism. It would be wrong to say that Gray has "faith" in politics. But he does think that politics are a much better way of sorting things out than the messier alternatives – war and revolution. He also reserves a degree of disdain for protest politics, not because it never succeeds in getting its point across – Gray fully accepted the evidence of global warming early on, for example – but because he is suspicious of movements that people join in order to find psychological satisfaction and "give meaning to their lives". It is the "meaning-conferring function of political projects" that he identifies as the aspect of them that allows people to get carried away with dangerous fervour.
In the introduction to Gray's Anatomy, the author declares with some irritation that he has lost count of the number of people who have asked him why he stopped "believing in Thatcherism". He has the good grace to chortle amiably when I facetiously insist on making that my first question to him. Anyway, it's still a good question, as he concedes himself, because its answer encapsulates pretty much every aspect of Gray's formative thinking.
Certainly Gray recognised in Thatcher, from the moment she became leader of the opposition in 1975, a politician who was willing to get her hands dirty. But more importantly for him, she was a militant anti-communist, as was he. He dates his interest in Russia from early in his teens, when he began reading Dostoevsky, and credits the hardening of his anti-Soviet, anti-ideological stance to "the enormous influence" of Norman Cohn's 1957 book The Pursuit of the Millennium.
"Cohn argued that all of the great political movements of the 20th century, including Nazism, were at least partly pathological versions of western religious traditions, in particular apocalypticism. If you talk to most centre-left people, these happy meliorists, these so-called inch-by-inch meliorists, they will say: 'That may be true of the 20th century and of the extremes of politics but not of us.' But I always believed that utopian or millenarian or, let's just say, irrational politics, could break out in democracies as well." His 2007 book, Black Mass: Apocalyptic Religion and the Death of Utopia, explains how the war in Iraq was one such nightmarish manifestation.
Crucially, Gray considers that one of the signals of incipient pathology is the advent of hubris. Hubris, he points out, entered the Thatcher project when communism collapsed. It was then that it came widely to be dubbed as "Thatcherism" and then that Gray judged it to have disconnected from reality. He recalls seeing Thatcher on television saying, "We are a grandmother," and thinking: "That's it, then..."
"One of my recurring tests of political reality and of political fantasy is when hubris penetrates not just leaders but an entire organisation," he explains. "Then it's over. That happened with Thatcher, and it happened with Bush. The key phrase with him was the famous: 'Are you part of the reality community?' "
Significantly, Gray's anti-communism differed in one important aspect from Thatcher's – and almost everybody else's. "Far from being pessimistic," says Gray, "I was considered wildly optimistic at that time because I thought communism – a tremendously repressive system of government – would simply collapse. Nearly everyone, including the Foreign Office and Sovietologists, always portrayed it as completely unshakeable. I didn't think that was true. It didn't have much internal legitimacy – ever."
So, while Gray fully endorsed Thatcher's "militant position in the Cold War", he wasn't utterly surprised when the Berlin Wall suddenly went, like a tower block that had been demolished in a controlled explosion. Except that this was an explosion that few saw the need to control.
"I was horrified by the uncomprehending and stupid western post-collapse policy towards Russia ... What were western policy-makers thinking in the Nineties, when Russia went through a demographic crisis? People were dying in numbers unique in modern peace-time. A third of the population went underwater, pensions and life savings went out of the window. What were they thinking would result from that? That was an absolute catastrophe. George Bush Senior, not long after the Wall came down, said: 'This is a great moment for freedom, but no occasion for triumph. It will be very, very difficult.' But nobody wanted to hear that.
"It went against the prevailing mood of triumphalism, when Thatcherism turned into a global project. It went against the opportunities for financial gain that presented themselves in the former Soviet Union. It went against the hubris of the time. What was needed was a very light touch, a non-ideological approach, very pragmatic, very flexible, very skilful. Instead what we got was: 'This is what you've got to do. Adopt this wonderful model that we've got.' "
The swaggering hubris of the time gained widespread intellectual legitimacy with the publication of Francis Fukuyama's essay The End of History, in 1989. Gray was back then contemptuous of what he saw as yet another expression of apocalyptic thinking, and an example of "the domination of the American mind by the liberal ideology that has fostered blind spots in American perception of the real world that have been immensely disabling for policy". While Fukuyama's theory is now dismissed as an aberration, Gray rightly maintains that its influence was pervasive and baleful.
Anyway, it is now all too obvious that neither global liberal democracy nor global free markets were unstoppable. Gray is quite certain, on the contrary, that they are over, in their present form. He predicts, during the piecemeal process of coming up with a different model, "a relatively long period of sheer survival".
"We are presently in the first phase, not of recession, depression, deflation, inflation – all these sterile debates. We're in the first phase of the collapse of this type of globalisation, or this phase of globalisation, which will have some features in common with the Thirties but will be different in lots of ways."
Gray admires John Maynard Keynes, and admires the post-war settlement. Why shouldn't he? From a working-class background in South Shields, he was nudged into grammar school and from there to Exeter College, Oxford, where he studied PPE because its reading list "coincided with the things I was reading anyway". He describes himself as a Butler boy, a child of the post-war settlement. But he doesn't think that approach will work now. All it provides, he says, "is a staff to lean on" while we work out how to "stop fighting the last battle instead of the one we are in".
"A crucial difference is that America isn't the industrial powerhouse of the world any more, so reflating America, even if it was possible, wouldn't get us out of the mess. The Obama administration is essentially rudderless. Gordon Brown did stop the banking system from outright collapse, but that was crisis management, and we're now at a later stage. Mechanical Keynesianism won't work, or at least won't work well in a context in which capital movements and economies are open.
"A semi-open global free-market was created, especially for capital. It has its own features, its own logic, its own dynamism. I don't think anyone fully understood how it worked or how big it was growing. So then it becomes very difficult to control, because there's no entity that embraces this economy. Each separate state or entity presents problems without even comprehending what is happening. They all react in different ways as they resolve different issues. The elite oscillates between immediate crisis management, and just dithering, or not knowing what to do, or quarrelling about who is to blame.
"In this early phase of collapse, Brownian rationalist re-regulation at an international level is utterly remote from what is in fact happening, which includes an entrenchment of illegal parts of the economy that are rather globalised. The elements of de-globalisation are: less trade, repatriation of capital, nation state more important. If you're going to bail out a bank there will be pressure – so far not very effective – for the benefits of that to be felt locally.
"So all these classical features of collapse are present. Which has happened before. This is a normal historical collapse. There was a major collapse in globalisation after the First World War. I'm not saying we are going to have what we had then, because there were a number of malign features then that we don't have now. We don't have fascism or communism we don't have imperialism or colonialism ..."
But we do have ecological peril.
"Yes. Industrialisation is still occurring. China still wants and needs 8 per cent growth a year. That requires large energy inputs and so oil prices will go back probably to $80 or more in the next few years. When that happens, will it be against a background of governments having taken various measures to ensure that they develop alternatives to oil? I doubt it. Because most environmental and ecological projects are being reined back because now the immediate imperative everywhere – in the case of China for regime survival even, or in democratic countries just as part of winning the next election – is to try to get the show back on the road. But the reason it collapsed is that it is not sustainable.
"There are no goodies and baddies in this. It's not just the Russians, the Chinese. It's also Canada, Denmark, Norway. All saying: 'We want our share.' That's the future. If we had the realism to see that as an ongoing trend, it could be mitigated, the sharp edges could be taken off. We could expect conflicts we might be able to manage better.
"But the actual response, I think, and this is partly to do with the way democracy works and the way the mass-media works, is to avoid confronting these admittedly intractable problems, because there is actually underlying despair. It's Prozac politics. If you say actually, possibly, we're past the tipping point for preventing a two-degree change. That's despair: 'I can't get out of bed. I'll get drunk. I just can't take it.' So it's a very fragile mental resilience we've got here.
"But in the Netherlands, they're giving some land back to the sea, they're giving some land that was farmed back to nature, they're building on stilts, they're creating wildlife passageways – they're responding. Intelligently. To my mind that's inspiring. Just take the emerging consensus of scientists and respond.
"Realism is a necessary condition of serious politics and serious policy-making. And realism isn't popular. Because what many people are looking for in politics – including green politics at the moment, is a meaning for their lives. If you say to people: 'We can't move to a world in which we don't have either nuclear or fossil fuels. That's impossible,' they will say, 'That's not impossible, not if we all want it.' But many countries don't want it. Russia's not going to do it. Venezuela's not going to do it. Iran's not going to do it. Their wealth and power depend upon fossil fuel. 'Well, we can do it,' they'll say.
"And when you push it, it comes down to a kind of symbolic expressive function whereby even if the effect of certain policies – like moving towards wind power – is to be forced back to coal, then it doesn't matter, because the purpose of the policy is not actually to effect a real-world change but to keep the spirits up.
"The search for a narrative which confers meaning on people's lives and shows them to be part of a larger, meaningful picture, is to my mind a legitimate and deep-seated human need." For that reason Gray scorns Richard Dawkins, and the whole idea that if people turned away from religious belief, the world would be "better".
"The search for meaning is dangerous when it spills over into politics. It's not only dangerous when it produces the communists, the Jacobins and the Nazis, but also in the context of democratic or liberal meliorism, because it creates a preference for policies which satisfy this need for meaning rather than have an actual effect."
Gray sees the present collapse as an inevitable consequence of the human condition, and particularly the human belief that somehow industrialisation is progressive, and can become wholly benign, for everybody. "Humans don't always adapt well to industrialisation, but pretty much all humans want the benefits of industrialisation. They want clean water, they want long lives, they want warm rooms, and, let's be frank, they also want a high-stimulus environment. I can't imagine what life is like in an immobile village in the medieval period. But it would be a very low-stimulus environment, in which people are stuck. There's no room for romantic nostalgia here.
"Yet all forms of industrialism are on one hand attractive to humans and on the other intolerable to them. Partly, that's their revolutionary character. It is in the nature of industrialisation that markets rise up and disappear because new technologies rise up and disappear. So whole industries vanish, with some of the ways of life that are associated with them. People have to move or change their skills, or find other things to do. It's not a transition to a stable state. It's permanent change.
"It's not really about capitalism. Industrial civilisation itself is inherently dynamic and revolutionary. I think Marx got that right. That's partly what human beings like about it. That's what's attractive. What's unattractive is that it is very difficult to reconcile its actual operation with the human needs for security and stability. People do want security and stability. But they also want possibility and thrills. They do want happiness, but they also want excitement, which is quite different. And these are ubiquitous human conflicts."
Gray remains a fan of the 19th-century philosopher John Stuart Mill: "Not his utilitarianism, not his belief in progress, not his Victorianism – but his eclecticism. He took things from different systems of thought. The truth about human civilisation is very unlikely to lie in some single form. Which he understood."
Yet specialisation is another change that has been ever-increasingly wrought by industrialisation. Very few people on the planet now can really claim to be intellectual generalists yet still have a grasp of "the detail". Gray suggests that there are one or two people who manage to achieve a useful overview. He is complimentary about Nassim Taleb, the writer and hedge-fund manager who also anticipated the crash. But he is, like many others, a bit cross with the "experts" of Wall Street and Canary Wharf, who didn't read Keynes or Galbraith – or even Ayn Rand – until they got their redundancy bonuses.
"The type of economic thinking that went on up to and including Keynes – which was not that long ago – doesn't happen any more. Political economy. Adam Smith. Lectures on jurisprudence. Theory of Morals. And so on. David Ricardo. Marx came out of that tradition.
"Economics wasn't seen as a separate discipline concerned with mathematics and the ability to model it. It was seen as a historical discipline connected with history, connected with morality, connected with the analysis of the nature of the human mind. And that went on right up to Keynes, who was a sophisticated kind of guy, founder of the Arts Council and so on, but who also wrote a treatise on probability, read all the philosophers of his day, was an investor, liked to go to Deauville and have a flutter.
"The post-war settlement did last a long time and was a benign settlement, predominantly ... But the way economics has developed ... it has cut loose from history, even from the history of economics, let alone the history of economies ... the loss of the past, of the sense of history is a very profound development."
It's slightly weird talking to Gray, because I find I agree with absolutely every word he says. I'm not sure whether we are just on the same wavelength, or whether, over the years, he's had such a profound influence on my world-view that I'm just a little John Gray thought-clone. However, since that's one question that Gray is quite unable to answer, I fear that I cannot answer it either.
'Gray's Anatomy' is published by Allen Lane, £20
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