Ann Pettifor: 4th January, 2009, 11.00AM
First of all apologies for the long break. Like many others, I have been re-charging batteries, spending time with friends and loved ones, sleeping a great deal and briskly walking the wild, windswept and often freezing Suffolk coast. Highlights? Christmas day walk and picnic with my beloved on a windswept beach, celebrated with a flask of tea, a flask of brandy, a slab of last year’s Christmas cake, a candle in a tin, and two crackers. And on the next, Boxing Day, at dusk, a startlingly beautiful murmuration of about 10,000 – or was it 20,000? – starlings flying in unison and is if they were just one organism over North Warren, Thorpeness.
Awesome, humbling and very good for the soul. Good too for thinking and re-thinking our collective fates. Under globalisation we hang together pretty much as a murmuration of starlings do…….. Which brings me to the big question: where are our leaders taking us to roost in 2009?
Kenneth Rogoff and a colleague Carmen Reinhart are presenting a paper this weekend at the American Economic Association conference that provides clues as to what fate awaits the citizens of both the rich and poor economies.
They’ve reviewed post-war (and one or two pre-war crises) for historical comparisons. (Note there are no crises before the Spanish crisis of 1977 – that is during the period when Anglo-American economies were safely protected from financial crises by Keynes’ monetary policies – domestic and international. See the Facts page of this blog.)
Interestingly Rogoff and Reinhart ignore the Russian financial crisis of 1998, and do not dwell on comparisons with Japan – by far the most comparable crisis for the US and UK – in my view. They find that real housing price declines averaged 35%, and these declines lasted on average for six years. Compare that to Japan – where house prices are still falling 18 years after the bursting of the Japanese Credit Bubble. Unemployment rose on average in crisis-hit countries by 7 percentage points, and this down-phase of the cycle lasted on average four years. Third, government debt exploded, rising on average by 86% – largely they find, as a result of the collapse in tax revenues.
Exploding government debt doesn’t bother me: as Rogoff and Reinhart argue, debt rises dramatically as tax revenues collapse; and debt will therefore fall as tax revenues rise – in other words, when the economy recovers. The government has a vital role to play in supporting that recovery. For government to do less, would be criminal.
But the unemployment numbers – all averages – are terrifying, as are the house price falls. Unemployment was at 6% here in the UK up until October, when the crisis began to gather traction. If it rises by another 7% – that implies a rise to 4-5 million unemployed. In the US unemployment rose by a huge 1,256,000 in just three months (See Dean Baker’s assessment at CEPR). According to the US Dept of Labor, unemployment is at 6.7% already – 10.3 million American citizens are without jobs or presumably, health care. If this number were to rise by 7% that would imply more than 20 million Americans without work or health care.
Herein lies a great deal of human suffering, anxiety and social and political dislocation – and I am not convinced that our leaders are sufficiently free of the old ideology – unfettered markets, unfettered and privatised financial systems and unfettered movements of capital – to address this grave threat of unemployment and house price falls. Today Gordon Brown has promised 100,000 jobs – for an economy in which unemployment is already close to 2,000,0000.
So while thousands of starlings were guided to warm, safe roosting sites on Boxing Day; my prediction is that we in the debt-burdened economies of the rich world may not be led to such safe havens in the year to come.