ACKNOWLEDGEMENTS
INTRODUCTION: WHATEVER HAPPENED TO THE DECADES OF PLENTY?
I count
myself as one of the last of the so-called baby boomer generation. We were the
lucky ones. Over the years, we enjoyed extraordinary increases in living
standards. Born in 1963, I am sadly a bit too young to have experienced at
first hand the Beatles, Jimi Hendrix and the Summer of Love but, economically,
my birth couldn’t have been better timed. In the first ten years of my life, per
capita incomes in the United Kingdom—adjusted for inflationary distortions—rose around 37%. By the time I reached my twenties, per capita incomes
had...
CHAPTER
ONE: TAKING PROGRESS FOR GRANTED
One of my
earliest childhood memories was waking up at some ridiculously early hour of
the morning to watch the late Neil Armstrong step out of the Eagle—Apollo
11’s lunar module—and utter his now famous ‘one small step’ mini-speech. In
the years that followed—alongside millions of other young boys—I became
obsessed with space travel. I read articles and books which predicted – with
considerable confidence, I might add—that lunar colonies would soon be
established and that humans would be heading to Mars before the end of the
twentieth century. I...
CHAPTER
TWO: THE PAIN OF STAGNATION
While
stagnation seems to present a whole host of problems, would it really be so
bad? Western nations are, after all, a lot better off than they used to be and
a lot richer than industrial powers in Asia, Latin America and elsewhere.
Maybe, after the debt-fuelled gains pre-financial crisis, we should simply get
used to living within our means. Perhaps, as the Skidelsky family would argue,
we already have enough.¹ Perhaps we should accept, with equanimity, our
declining influence in world economic and political affairs and, as I put it
in Losing Control, learn to grow old gracefully.
CHAPTER
THREE: FIXING A BROKEN ECONOMY
We need our
economies to continue expanding at the rates of old because, otherwise, we
cannot easily meet the promises we’ve made to ourselves. We are simply not
primed for a world of ongoing stagnation. We prefer to stick to our illusions.
If economies are incapable of healing on their own, we put our faith in the
policy-maker’s magic wand.
The debate
on the ability or otherwise of economies to ‘self-adjust’ is long and tortuous.
Before the Weimar Republic’s hyperinflation in the early 1920s and the Great
Depression of the 1930s, there had been few recognized instances of major
macroeconomic...
CHAPTER
FOUR: STIMULUS JUNKIES
We hope our
monetary and fiscal drugs will cure us but they may only be making our problems
easier to live with, at least in the short term. Their persistent use, however,
may be associated with unwanted side-effects.
For the most
part, monetary and fiscal policies have, rightly, been regarded as the
equivalent of drugs designed to fix the underlying problem. Interest rate cuts
are normally temporary—what comes down eventually goes back up again. Big
budget deficits designed to kick-start an economy automatically recede as the
subsequent economic recovery tops up tax revenues and reduces social
expenditures. Just...
CHAPTER
FIVE: THE LIMITS TO STIMULUS: Lessons from History
Whether
through interest rate cuts or quantitative easing, monetary decisions create
both winners and losers. In the normal course of events, these decisions even
out over time. Savers win during periods of high interest rates, while
borrowers gain during periods of low interest rates. Even if quantitative
easing makes it easier for governments to borrow in the near term, success
should ultimately allow private sector activity to recover, thereby raising tax
revenues, reducing public spending on unemployment benefit and, hence, paving
the way for a cyclical fiscal improvement. In this sense, monetary policy might
be regarded as ‘neutral’ through the...
CHAPTER
SIX: LOSS OF TRUST, LOSS OF GROWTH
If
macroeconomic policies—of either the conventional or unconventional kind—cannot deliver a return to ‘business as usual’, what’s gone wrong? Is it simply
that we expect too much? Or is it that the problems facing Western economies
are not easily resolved simply through an interest rate tweak, a money-printing
measure, a tax cut or a big increase in public spending?
Something more
fundamental is amiss. Macroeconomic policies are more likely to succeed if we
believe the underlying economic foundations are still intact. Yet those
foundations are in danger of collapsing. Central banks are now busily engaged
in...
CHAPTER
SEVEN: THREE SCHISMS
To
understand the challenges stemming from a breakdown of trust—in particular,
when the breakdown is linked to economic disappointment—it’s worth going back
to the thoughts of Alexis de Tocqueville (1805–1859), author of Democracy in
America and The Old Regime and the Revolution. In the latter, he argued that,
well before the 1789 French Revolution:
public
prosperity began to develop with unexampled strides. This is shown by all sorts
of evidence. Population increased rapidly; wealth more rapidly still. The
American war [of independence] did not check the movement: it completed the
embarrassment of the state, but...
CHAPTER
EIGHT: FROM ECONOMIC DISAPPOINTMENT TO POLITICAL INSTABILITY
The schisms
seen in Western societies today are hardly new. Karl Marx (1818–1883) wrote
about these kinds of strains 150 years ago. Indeed, those with Marxist
sympathies would doubtless argue that what we’ve witnessed since the financial
crisis is an inevitable process of worker immiseration fundamental to the
capitalist model. As Marx noted in Das Kapital:
Within the
capitalist system all methods for raising the social productivity of labour are
put into effect at the cost of the individual worker . . . all means for the
development of production undergo a dialectical inversion so that they become
means...
CHAPTER
NINE: DYSTOPIA
At the end
of the twentieth century, it seemed as though markets had emerged triumphant.
Whether thanks to Adam Smith with his invisible hand or to Friedrich Hayek with
his hatred of central planning,¹ proponents of free markets had won the
argument. They knew that a happy and prosperous society depended on the
decisions of millions of individuals whose actions were ‘coordinated’ through
the miracle that is the price mechanism. Rapid global growth was a direct
result of the spread of market forces around the world. Those who resisted this
process would ultimately lose out. Deregulation and privatization spread
like...
CHAPTER
TEN: AVOIDING DYSTOPIA
How can
expectations best be managed when economic life begins to disappoint? What sort
of narrative should politicians, business leaders, bankers, trade unions,
public servants, newspaper editors, religious leaders and all the rest adopt in
the light of economic setback? Should they claim that ‘we are all in this
together’, as George Osborne, the British Chancellor of the Exchequer, once
famously argued, even though his own circumstances were hardly humble? Should
they choose, instead, to blame others – and to suggest that those others should
pick up the bill—for persistent economic disappointment?
NOTES
BIBLIOGRAPHY
INDEX
“Well-written, thoughtful and highly convincing.
. . . [King’s] clear-eyed assessment of the problems ahead makes the book
essential reading.”
—The Economist
“For many, the financial crisis is a temporary
interruption in the rise of western prosperity that is due to easily remedied
policy mistakes. The Keynesians believe this, as do anti-Keynesians on the
free-market right. King argues, instead, that the future is not what it used to
be. We have made promises to ourselves we cannot afford to keep. The argument
is important, even if, like me, you are not persuaded.”
—Martin Wolf, Financial Times.
“Hard-hitting, history-rich book”
—David Wilson, South China Morning Post
“A ‘powerful’ and ‘convincing’
book. Overall, as Charles Moore notes in The Daily Telegraph, ‘it’s
alarmingly difficult to disagree’ with this book.”
—Matthew Partridge, Money Week.
“The book is jammed full of history [...] and is
highly readable - being rich in the economic history that he argues was
lacking in pre-crisis economic analysis. It is accompanied by some wonderful
anecdotes and provides a good mix of economics and politics in addition to its
historical detail.”
—George Buckley, Financial World
“Stephen King, chief economist at HSBC, has just
published an interesting and well-written book When the Money Runs Out.”
—Paul Ormerod, City AM
“In this book, HSBC’s chief economist describes a
real-life economic horror story, picking over the bones of the global financial
crisis with the professional detachment of a forensic scientist examining the
scene of a crime. The conclusions are clear and compelling. By the end, we know
whodunit, how it was done and why, without resort to economic jargon – there
are few acronyms, no equations and no charts. Instead we are offered policy
prescriptions that ring true – uncomfortably so . . . The book should appeal to
a wider audience than economists. The author is a newspaper columnist as well as
a professional economist, and it shows in the crisp and easy style of his
prose. I recommend it heartily.”
—Erik Britton, Management Today
“The author has tightly reasoned arguments. . .
and suggestions for the steps that should be taken to ensure economic stability
for future generations.”
—Library Journal
“[King] is dabbling in the financial equivalent
of the horror genre. Perhaps even scarier, his is the stuff of nonfiction.”
—Michael J. Casey, The Wall Street Journal