Read an Excerpt
HARD TIMES
THE DIVISIVE TOLL OF THE ECONOMIC SLUMP
By TOM CLARK, ANTHONY HEATH Yale UNIVERSITY PRESS
Copyright © 2014 Tom Clark
All rights reserved.
ISBN: 978-0-300-20377-6
CHAPTER 1
Not quite 1933
Where is all this money, all this electronic money that's gone missing? How has it gone missing? Who is accountable for it? None of this is happening
'Winston', 47, jobseeker from Stanmore (on the outskirts of London), speaking about the slump
The storm came out of a clear blue sky. In his 2007 Budget speech, Chancellor Gordon Brown could boast that Britain was enjoying 'the longest period of economic stability and sustained economic growth in our country's history', just before he moved unchallenged into No. 10 Downing Street. The long expansion in the US economy had been briefly interrupted by 9/11, but felt just as assured. Few outside the financial sector discerned the first whispers of a credit crunch during that notably wet English summer, but then September brought something unseen since 1866 — a run on a British bank. It was not yet obvious that the queues of savers that formed outside branches of the smallish, provincial Northern Rock represented a threat to the financial universe as we knew it. But a year later — almost to the day — Lehman Brothers came crashing down in New York, heralding the start of the most catastrophic phase of the crisis. Within weeks, America's biggest insurer, AIG, the Washington Mutual Bank and Britain's own financial giant, RBS, would be respectively bailed out, bust, and bought up by the taxpayer.
As the towers of high finance shook, ordinary citizens watching from the streets below were entitled to ask what on earth the panic gripping the investing classes had to do with them. What passed for explanation on the news involved a series of acronyms — MBSs, CDSs and CDOs — that all turned out to be cunning schemes to make money out of debt which had suddenly proved to be not so cunning after all. In describing his bewilderment to us, 'Winston', a lean man with an urgent, expressive voice, speaks for the many. But six years on, 'Winston' finds himself uprooted and living alone, miles from his family, and — as we shall see — with every aspect of his life, from his diet to his dwindling dealings with relations, warped by the fall-out from those far-away financial dramas.
There is no doubt that for 'Winston', as for the least-fortunate minority in Britain and America, a financial slide has ended in personal misery. But how far has economic turmoil spilled over into a wider social malaise? Our Introduction pointed to reports from Austria's Marienthal and records of American civic associations to suggest that such a malaise did indeed set in during the Great Depression. However, does it really feel as if society has come crashing down again — as though the 1920s world of Fitzgerald's Jay Gatsby has suddenly transformed into something more like the 1930s world of Steinbeck's Tom Joad? This chapter attempts a cool appraisal of the average force with which the contemporary storm has blown.
Anyone who has lent even half an ear to the news in the past five years cannot have failed to gather that this was no ordinary slump. This was the big one, or so they said — the 'once in a century' event, as Alan Greenspan put it in 2008. But the financial elite is interested in financial phenomena — share-price swings and overnight interbank rates — that are only of direct concern to itself. If we're talking people instead of percentages — and talking particularly about the majority of people who do not dabble in stocks or in interest-rate swaps — then is a purely financial crisis really such a big deal? Is there any serious reason to think that disruptive events in the alien world of Wall Street or the City of London would leave us all living in a world turned upside down?
The economic case for saying that they would do so starts with the historical observation that slumps which follow financial crises are invariably more significant. The disrupted flow of capitalism's monetary life-blood means that unemployment typically rises and output typically falls by twice as much — and for twice as long. Six years on from the financial drama, a sober reading of the figures on the amount of real 'stuff' that the economy is churning out confirms that, in Britain at least, the ensuing slump has proved, if anything, worse than the Depression.
The figure below compares the profile of the decline in the UK's national income since 2008 with what unfolded at the beginning of the 1930s. The great contraction in 1931-32 was scarcely any sharper — about 7% of total output lost at the trough on both occasions. This is absolute GDP: if we looked instead at GDP per head (to take account of the fact that the more recent recession occurred at a time of faster population growth), then the downturn this time would appear relatively steeper. And since the sort of social processes that we will be investigating take time, the duration of the loss is probably more important than its magnitude. On that count, the twenty-first-century slump is the more severe. In mid-2013, 64 months into the downturn, output was still 2% below where it started, whereas the full depth of the dip in the Depression was recovered within 48 months. Again, this sustained decline would be even more marked if we looked at national income per head.
For the US, the figure opposite tracks the recent slump against the two nastiest recessions since the Second World War. The American slide that began with the credit crunch in 2007 is confirmed as both deeper and more enduring than any since the 1930s. The oil shock of 1973 called time on America's motoring way of life, forcing the introduction of a national speed limit and requiring President Nixon to plead with filling stations not to sell fuel on Saturdays; but the crisis of 2008 knocked half as much again off GDP. The great Reagan industrial shake-out of the 1980s felt as though it dragged on for ever, but the graph shows that after the recent recession it took GDP a whole year longer to bounce back.
Moving from facts to feelings, we can also establish without any difficulty that the public noticed — and long continued to notice — something awry. In spring 2013 (so more than three years into the technical US recovery), the pollsters YouGov found 64% of Americans claiming that their own lives had been significantly affected by 'the economic problems in your country' — an overwhelming majority. This was matched by a weighty 57% of Britons who said the same thing to the selfsame question. The mood that surrounds money has a funny way of affecting things that are not obviously related to it; in a characteristic flourish, Keynes once ventured that Shakespeare's genius could only have thrived in the exuberance of an inflationary era. Conversely, in the cautious mood of economic depression, one contemporary American writer has observed that people 'date less, sleep more and spend more time at home', while 'pop songs become more earnest, complex and romantic'. No Briton old enough to recall Morrissey crooning about unfulfilled love as unemployment topped 3 million will dispute the last point, even if the recessionary connection then was not as stark as with John Rich's 'Shuttin' Detroit Down'.
Flickers of a Depressionary social psychology can also be detected in the sales of those few things to have bucked the downward trend. In 1930s America, the yen for escape rendered cigarettes and cinema tickets about the only goods to record rising sales; meanwhile, the flurry of new chocolate bars on the other side of the Atlantic led Roald Dahl to venture that interwar Britain was to confectionery what the Italian Renaissance was to art. Today, Kantar's market research reveals that Britons have, once again, developed a taste for more sugary and fattier foods. And on the basis of 34,000 consumer interviews conducted during the economic trough of 2009, YouGov reported large proportions of UK shoppers switching to supermarket own brands, drinking less in the pub and cooking with leftovers (or at least claiming to do these things). By January 2010, 31% said they were doing more home-baking, 19% more mending of clothes and 20% more vegetable growing; a full 77% claimed to be doing more of one or other of the money-saving activities suggested than before the downturn.
Yet a nation of thrifty bakers and vegetable growers is hardly a social catastrophe. And while a recessionary passion for sugary and fatty snacks may well be storing up health problems farther down the track, establishing that comfort consumption is back on the menu is not the same thing as proving that our communities are going to the dogs.
It may be as well to pause here and consider a much more sanguine interpretation of what has been going on. The Great Recession may be the worst American slump since the Depression, but that does not mean it is anything like as bad as the Depression was; the sheer scale of the slide witnessed in the US in the 1930s defies contemporary comparison. The total decline in real GDP then was something like one-quarter when measured between the calendar years 1929 and 1933; it was more like one-third from precise peak to trough; and it was virtually one-half for industrial production. These thumping great fractions — a half, a third, a quarter — are declines of another order from the knock of 7% or so that the UK suffered both back then and now, or the 5–6% hit to GDP that America suffered between 2007 and 2009.
The grim tales in our Introduction about social atomisation in the 1930s came from a village in Austria (a nation where industrial production dropped by nearly 40% in the 1930s) and the severely depressed United States. Perhaps it is more sensible to compare the recent single-digit contractions in output with interwar Britain. Forget for the moment the darker observations of J.B. Priestley about 'sooty dismal little towns' and 'fortress-like cities' in the stricken regions, and recall that this was also a land peppered (as one social history recounts) with mutually owned working men's clubs with large numbers of attached associations — 'bowls, angling and picnic clubs ... Oddfellows or Buffaloes' — and special rooms where 'officials of the unions or the co-ops, or local councillors drank'. Besides, the Depression comparison is arguably over-egged, even for the UK. For the slide of 1929 represented a dive in a British economy that was already stagnant. Stiff interest rate rises and extraordinary retrenchment had snuffed out the brief post-First World War boom so decisively that the UK was stuck with, to use John Maynard Keynes' phrase, 'the dragging conditions of semi-slump' for much of the next two decades. This time, by contrast, at least we enjoyed a boom before the bust.
If you really want to cheer yourself up, though, forget about recent changes to national income and concentrate instead on just how much national income there is. Ceaseless technological advance since the Depression has steadily cashed-i n as growth. Over 80 years, this has gradually worked a miracle, more than quadrupling output. The graphs overleaf provide the long view, cutting through the busts as well as the booms and charting the inexorable rise in income which has prevailed in both the UK and the US. The data is fully adjusted for inflation, and indeed for population growth, because this is national income per head. Look closely, and you can just about spot wobbles connected with the world wars and America's Great Depression. But presented in this way, none of the downturns in either country appears as anything much more than a ripple on a great rising wave. The Great Recession is definitely visible at the ends of both the British and the American series, but in neither case does it look like anything to get excited about. After all, the real action here does not lie in the slight difference between 2010 and 2007, but in the utter contrast between incomes in either of those years and those prevailing at any point of the 1920s or 1930s. If, for example, we compare the peak year of 2007 with the pre-Depression peak of 1929, then British incomes have gone up by 470% and those in the US have risen 550%. In the face of these sorts of numbers — and these sorts of charts — any talk of 'hard times' suddenly sounds hyperbolic.
Statistics and charts aside, is all this supposed progress meaningful? Growth works slow-motion magic: it is hard to spot while it is happening, and is more easily grasped at a distance. Let's consider how technology transformed the reach of artificial light in the century before the Great Depression. Back in 1835, the typical overworked and underfed individual would have had to spend a full extra hour labouring for every ten hours that he wished to keep a single candle alight after sundown over the week, a cost that inhibited reading among even the literate minority (and that explains the old expression about an activity not being 'worth the candle'). But after a century of filamentary innovation, by 1930 a glimmer of light equivalent to one candle could be sustained over ten hours for the cost of something like five seconds' work. So it gradually became possible to attain enlightenment in the dark hours without fretting about the cost, a development with profound social consequences.
No more profound, however, than the marvels wrought between the Depression and our own time: from the green revolution in agricultural yields to the deployment of robots in manufacturing; from polymers that make cut-price packaging to molecules that battle malignancies; from endless home entertainment to instant communication with anyone anywhere. The result? In terms of consumer goods and services, we really are much better off on average. A relatively modestly paid worker can today embark on a flight that would have bankrupted someone far higher up the wage range at the time of the Depression — and that's before we even consider the transformation in the chances of surviving the trip!
For any who remain doubtful that growth bears a relation to human welfare, we can go even further back, to the early Industrial Revolution. At that time, Thomas De Quincey was admittedly guessing when he ventured that a quarter of all human misery was toothache; but thanks to progress in dentistry — and our ability to afford it — no one would make the same guess today.
All this growth, then, is real money; it should be able to offer society real protection against hard times. As the world slid towards the abyss in 1930, Keynes took a brief break from peering over the edge and looked forward instead, to the 'Economic Possibilities for Our Grandchildren'. He correctly predicted how much magic technology would work, and then suggested that there might come a point when getting richer would 'no longer [be] of high social importance'. It has always been said that the most valuable things are those that money can't buy. Keynes' essentially accurate long-range forecast prompts the thought that we might already have reached a pass where we can afford to protect the things that really matter — things like mental health, family and community — from the vicissitudes of the business cycle. With national income so high by any historical standard, we are left with a question that holds few terrors: How big a deal is it when a rich society gets a bit poorer?
Hopes of a heartening answer draw support from a wealthy society that has experienced dragging semi-s lump in our own time — the curious case of Japan. Supposed 'hard times' have gone on for so long, and there have been so many twists, that it is tricky to date them with precision. The causes remain contentious, but Japan has made a habit of recession for a long time now, and whereas real national income before 1991 was expected to grow by about 3% annually, since then it has barely averaged 1%. The cumulative effect is huge: by 2013, real GDP was fully one-third less than it would have been if pre-1991 growth rates had somehow been maintained.
In 1995 — a few years after stagnation became entrenched — Japanese society faced the Great Hanshin earthquake. It killed over 5,000 people, damaged over 100,000 buildings, chiefly in Kobe, and a fumbling response from Tokyo made matters worse. But then civil society, not previously reckoned to be much of a force in Japan, stepped forward to pick up the pieces — literally and metaphorically. By some estimates, over a million volunteers lent a hand, and eyewitnesses spoke in awed terms of how citizens 'organized themselves with military precision and stormed the city'. This came to be seen as a turning point: by 2004, an American-educated academic based in Tokyo could write that, while Japan had lost 'a system and a fortune, it found improved life style' thanks to 'a quiet transformation ... extending and reinvigorating its stunted civil society'.
On the economic front, the bad news for Japan just kept coming. After 2008, the familiar steady stagnation was compounded as the Great Recession briefly knocked 10% off GDP, a sharper immediate contraction than in either Britain or the US. In March 2011, just as the nation was sinking into its second post-Lehman dip, real disaster struck. Some 43 miles out to sea, the Tohoku earthquake rumbled into life, unleashing a tsunami that would claim 15,833 lives, deprive millions of electricity and trigger a Level 7 meltdown in the Fukushima nuclear power plant. Prime Minister Naoto Kan pronounced it the 'toughest and most difficult crisis for Japan' since the Second World War. This was a moment to remember that there is more to life than money. But how would two decades of 'hard times' condition the community's response? Recall Michael Lewis' description of recessionary Greek society as 'a collection of atomized particles' — and shudder.
(Continues...)
Excerpted from HARD TIMES by TOM CLARK, ANTHONY HEATH. Copyright © 2014 Tom Clark. Excerpted by permission of Yale UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
