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After the financial crisis of 2008, life returned to normal. Will it be this time? | Philip Inman


VConservative candidates are splashing the cash as they vie for the keys to No 10, it seems rude to ask where will the money come from. Running a 21st century economy isn’t cheap and, unfortunately for those in power, it’s getting more expensive every year.

More immediately, more relief is planned to avert the cost-of-living crisis that has turned into a disaster for low- and middle-income households this winter.

Treasury officials are under no illusions that rising electricity bills, combined with extra food and travel costs, will force the next chancellor to dig deeper than their predecessor to fund generous energy subsidies. A tax cut if win by Liz Trusswill only increase the need for additional borrowing.

The bill will be large in any case, and yet will amount to no more than fits of generosity while the rising tide of demand lays on the knees of the exchequer at the feet of the chancellor.

It’s easy to see how conservative politicians can ignore all the warning signs and believe that the economic benchmarks they grew up on will soon return to pre-pandemic norms, making all their spending affordable.

Look back at the financial crash of 2008: it should have exposed the fundamental flaws of the global neoliberal economic system and started a debate about how to build an alternative. Books such as The cost of inequality by Nobel laureate Joseph Stiglitz should have made us all think about how the postwar consensus developed. Stephen King’s award-winning opus When the Money Runs Out: The End of Western Prosperity appeared a year later, in 2013.

Like Stiglitz and many other commentators, King, a former HSBC chief economist, wrote and published his book in the aftermath of the high oil price crash. As it is today, the price of Brent oil above $100 per barrel had a paralyzing effect on the global economy.

Along with the pressing issue of inequality, there was talk of climate change and how high fuel prices will drive the switch to low-carbon energy, force manufacturers to cut their emissions and highlight the benefits of insulating British homes from cold and hot weather.

It didn’t take long for the Cassandras to find themselves on the sidelines. By 2015, oil and gas prices had fallen like a rock, along with most commodities. EU economies were still struggling with debt, but most voters could afford cheap clothes, cheap food and cheap flights to countless destinations.

In the same year David Cameron has overturned Ed Miliband’s strict house building regulations, allowing developers to build striking estates with as much insulation as a wedding marquee. By 2019, diesel SUVs accounted for more than a quarter of new cars sold in the UK, with Ryanair recording strong profits for four years.

Tens of millions of people are still affected by the consequences of the disaster. They were reluctant to change jobs for fear of losing the advantages they had accumulated. Banks have been more cautious about lending, preventing young people from taking out mortgages if they don’t have cash from mum and dad. But they could delude themselves that their lives had returned to something normal.

Truss appeals to voters, like Boris Johnson, with the confidence born of experience that if we wait a little longer, the usual conditions of economic life will return.

After a brief recession, this argument suggests, the war in Ukraine will end, gas prices will fall along with other commodities, and inflation will fall to 2% or below.

Central banks, including the Bank of England, will drop interest rates to zero and we can continue to borrow to buy property or buy that kitchen/patio/conservatory we’ve always dreamed of.

This optimism is a trap for Labour, who can only appear miserably austere in response.

If you think the money is running out – and it is – then some pretty radical changes to the tax/spending mix are needed.

Keir Starmer is already talking about shifting the tax burden to higher earners to fund the long list of demands that always await a Labor prime minister – among them more spending on education, health, social services and international aid. At the heart of the leveling up is the transportation plan.

There was a time when much of this could be financed by defense cuts. But even this is not considered in the current arms race.

Starmer is probably hoping, like Truss, that we’ll be back to the old laws of economics before the next election. This seems unlikely.

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