"The trouble is you in the media," said a friend this week with some anger. "You're spreading such gloom about the recession that even people in perfectly safe jobs are refusing to spend."
Well, journalists are certainly at fault for not forecasting this mess. No more than anyone else has the media forewarned and forearmed the public that this would happen. And for much the same reason. We went along with the consensus and the celebration of big money success. Few if any tried to understand what was happening in the capital markets or the risks in the exotic instruments multiplying exponentially in their computer trading desks.
"Sorry", of course is the hardest word, even more for politicians and apparently bankers than journalists (some of whom have fessed up to their errors). And perhaps it is idle ever to expect prime ministers or chancellors to own up to their mistakes. David Cameron no more than Gordon Brown would confess if their positions were reversed.
What the public does have the right to expect, however, is some honesty when politicians don't actually know the answers. Of course the media make it more difficult for politicians just to stand there and admit ignorance. But Gordon Brown's denial of uncertainty is taking on monumental proportions. And the more reluctant he is to admit ignorance, the less the public believes that he has a grip on the situation.
His political dilemma is obvious enough. Having set himself up as the man in control, the leader with the answers for here and everywhere else, he can't afford to admit that the measures he so bravely proclaimed as leading the West in tackling the banking problems simply haven't worked, that his actions to reflate the economy have done little to restore consumer confidence and that his measures to prop up the banks have failed to get them lending again,
He blames the banks of course. But then that also is his problem. In Brown's version of the present crisis, everything has come from the outside, nothing is his responsibility. The recession stems entirely from the financial disasters of the US. The downturn in sales and the rise in unemployment is solely attributable to the banks' refusal to lend. His busting of the rules of borrowing are no more than everyone else is doing around the world.
None of this is wrong in itself. The immediate occasion of this crisis was the sub-prime loans in the US. The seizing up of lending is helping prevent an early recovery. Most of the world is embarked on reflationary measures at the moment, breaching many if not all the traditional rules of budgetary prudence.
But it is also true that the major economies, led by the US, were already heading for recession before the sub-prime loan crisis, that the underlying problems of over-borrowing and indeed banking excess originated as much in London as New York, that the lack of lending arises as much from the lack of confidence in the borrowers than in the banks and that Britain's budgetary position is less able to sustain massive government borrowing than many others, many of whom are following a different path of reflation than us.
Depending on your view of the causes, so will depend on the measures you take. If you believe the problem is with the banks, then nationalisation seems the logical step to forcing them to lend. If you think that liquidity is the key, then you will reduce interest rates to zero and start printing money, as the Federal Reserve is. If, on the other hand, you see the crux as consumer confidence, you will go for tax cuts. And if you think investment is the key then you will ratchet up public expenditure with capital projects, which is what President Obama seems to be planning.
So far Britain seems to be trying to do all these things, and succeeding in none of them. This is partly because the Government has been trying too many things piecemeal and partly that – although it will not admit it – its finances do not allow it to spend the kind of sums needed. But the real difficulty comes back to the question of uncertainty. At the heart of this recession lies the difficulty that everyone is having in estimating risk. That problem seemed to be solved when the banks went in for securitising risks in more and more exotic instruments that seemed both to spread risk between investors and around the world and to reduce it by insuring against movements in prices, interest rates or whatever. Banks didn't just dream up mad pieces of paper for the profit of it (well, not entirely). They genuinely thought they were serving the function of globalised finance.
Now no one knows what risk is. Banks don't know the risks on their toxic debt, homeowners and mortgage companies don't know the future of house prices, financiers can't tell the future of interest rates, businessmen can't forecast the cost of their energy or raw materials and consumers can't tell whether they'll be in a job or whether the car they buy would be better left to a new, low-carbon model. It's not journalists who are spreading unnecessary gloom, it's the real world that is hunkering down in the face of uncertainty. In the end, the paramaters for confidence will reappear as the market players start to define risk, prices and exchange rates begin to settle down and the structural changes in demand and trade emerge. Governments can help the process by co-ordinating their action, leading the way in high-tech, educational and environmental investment and pumping in money. They can certainly help protect the victims of change. But in the long run of this recession they're still feeling their way as they go along.
It's no good governments saying they know. They don't. Gordon Brown and Mervyn King, the governor of the Bank of England, were only six months ago telling us that inflation not deflation was the danger. Yet there is something in the political make-up, and especially in Gordon Brown's character, that demands that they appear to know all.
Their voters don't feel that way. They know that they don't know and they're pretty confident from the gathering pace of new emergency measures that their political masters are just as much in the dark. Obama seems to understand it, judging from his inaugural address appeal for everyone to roll up their sleeves and work to get through this winter. Only our Prime Minister, still claiming the mantle of the sage, appears in denial.Reuse content