Have we actually recovered from 2008?

[brad465]

As we come out of covid and its associated economic impacts, I've been thinking back to the aftermath of the 2008-09 financial crisis (or as I like to call it, neoliberalism's fatal injury) and how we supposedly recovered from that. I would argue that while on paper it may look like we recovered, in reality I think society as a whole hasn't, and may even have acted in such a way that a "2008 mark 2" is a real possibility, here's why:

- There hasn't been a single year since 2008 where an incumbent UK Government has been able to pay off public debt, it's always had to borrow, despite Osborne's desires to balance the books in particular. The general rule is one borrows in hard times, with a view to pay back in better times; as we're still borrowing money (even just before covid), we're still in hard times I'd say.
- The Bank of England, and other like-minded central banks like the ECB and the Fed, have had to resort to keeping interest rates at levels that were unprecedented before 2009, both in terms of magnitude and duration at record lows, while also effectively printing money like there's no tomorrow in Quantitative Easing (QE). I like to think of this as keeping the whole system on life support, and their reluctance to put rates up from 2010 onwards, and in particular in the last few months, is testament to that (Mark Carney moved the goalposts on rate rises plenty, and now Bailey seems to be doing the same).
- The above actions have helped fuel bubbles in housing markets, stock markets, commodities like gold, more recently bitcoin and other investments that are not fiat currency, which looks very unhealthy in general, and in the case of housing creates huge social divides in affordability. If any combination of these crash then this is where a "2008 mk 2" is a real risk.
- Most austerity implemented from 2010 onwards is still in effect, i.e. a lot of cutbacks haven't been reverted back to at least where they were in 2010.
- Wages have stagnated or even declined in real terms, especially in the public sector, but also in many low skilled sectors, while for bankers, CEOs and other elites have rocketed and/or seen massive bonuses awarded, indicative of a "k-shape recovery".
- All productivity surveys show stagnation since the financial crisis, even though GDP has gone up, suggesting the inflating bubbles and spending on cheap borrowed money are the main GDP drivers, which amounts to "fabricated growth".

As I've alluded to at the start, what I think is wrong is we think the old ways pre-2008, i.e. neoliberalism, worked, when actually, this crisis and trying to recover from it with huge bailouts and other "life support" show the opposite. The trouble is nobody senior in politics anywhere in the world seems to have come up with a solution/new way of doing things. FDR's New Deal agenda and resultant social democracy was the new system that arose from the Great Depression, which I think is the degree of change we need, even if the system isn't the same. New problems require new solutions. Until this happens, I expect extreme inequality will only worsen and the resultant populist politics that led to the likes of Brexit and Trump will stay put.

 

[Cowley]

I must admit that at the time I remember saying to friends that what we were in at the time was actually the new base level reality…
I bought a house a few weeks before the crash when anything on the market was selling within five minutes of going on the market and I watched the house prices as my property dropped below what I paid for it.
Eventually it crept above that original line and I made some money on it when I sold it, but overall I don’t know if I’m really any better off financially after the best part of 13 years of working my backside off since 2008?

I’ll be interested to see what other people’s experiences are though.

 

[GrimsbyPacer]

2008 wasn't any different from any other financial crash, certainly never changed my life at all.
Things are no different today then they would have been, there will always be another recession, another government putting banks before people, it will happen again and again, 2008 is not special, just the news blew it out of all proportion, like today with Brexit, or with Y2K, stock markets follow the news closely and scare stories are what crash economies.

 

[Cowley]

2008 wasn't any different from any other financial crash, certainly never changed my life at all.
Things are no different today then they would of been, there will always be another recession, another government putting banks before people, it will happen again and again, 2008 is not special, just the news blew it out of all proportion, like today with Brexit, or with Y2K, stock markets follow the news closely and scare stories are what crash economies.

Well yes there is probably some truth in that. Having lived through quite a few recessions in my life now there’s always been a certain pattern.
That one felt different to those other ones though and since then the trajectory of the extremely rich seems to have only headed rapidly upwards whilst everyone else has either stayed at a similar level or slightly gone downwards.

 

[GrimsbyPacer]

Well as long as the prices of things on the shelf stay low as they have done (inflation is not as bad as they say, milk, chocolate, tea, bread, are all super cheap still, many prices are the same as 2008 amazingly), and wages are of nine quid now, things aren't too bad. I'm only a part time cleaner, but I'm coping. Hopefully the tax arrangements will catch up with the super rich as governments seek money.

 

[Cdd89]

One problem with the term neoliberalism is that it’s thrown about a lot but quite poorly defined. It generally relates to an absence of controls, but nobody can agree on what controls there should be. It is thus a default position and I would argue is therefore not an ideology as such (even though there are proponents who treat it as such) but human nature.

Don’t get me wrong — I am economically somewhere in the centre and think plenty of controls make sense; to reduce speculation, bubbles and market failure. But concepts like degrowth don’t translate into the billions of decisions made by individuals every day that drive the status quo. Degrowth sounds great on paper, but is only appealing to a minority when actions that would lead to it are proposed in practice.

 

[Sm5]

Much of what we import or buy is denominated in $ (even if its from elsewhere) its the global currency of trade. No matter your view on the USD somewhere, even if its a raw material, there will be a component thats supplied in USD.

£1 was worth over $2 In 2008.
£1 = $1.34 today.
A drop of 30%.

If you or your business earned £50k in 2008, your equivalent was $100k USD.
£50k in 2008 is worth £68k today according to the BoE calculator.

if you were to simply keep pace with inflation and maintain your ability to sustain foreign import spend £68k would be $136k today.

Peoples salaries have not met that, Business incomes have met that.
if you don't earn you cannot spend. It restricts business income and ability to restock in USD goods.
Most peoples salaries have not risen at all in a decade.

today
£50k in 2020 is $67k, which is nearly 50% ($66k) less foreign spend potential than 2008 if we maintain the BoE inflation and USD equivalents of 2008.

in simple words, we cant afford to buy those foreign materials at the same volume any more.

Whilst there has been a minor shift to UK production, and some lower skilled pay rises its no surprise productivity has fallen, peoples purchase power has considerably waned and import of goods is considerably higher. That inturn affects those underlying businesses squeezing their margin, restricting spend and reducing ranges. That cash flow difference restricts that ability to raise wages instead ultimately pushing up prices and reducing peoples spend power further.

Brexit might be forcing minor pay rises for the lower paid, but its not making the country more healthy, its just making it even harder for businesses to be profitable.

The additional problem of Brexit will be dismantling of transport infrastructure, if we import less, less logistics come here, further raising prices as economies of scale are lost… when BA sent its 747’s for premature scrap, it was a message.. capacity is gone and isnt coming back, many other less publicised examples available.

At some point we need confidence in the UK to return, to raise the currency, by some magic invention the world needs to buy from us. That would need to employ thousands of jobs, need inward investment and stimulate trade (until 2008 we were pretty good at banking that was doing just that). The other option is considerable interest rate rises.

A lot of people point to house price rises, In a global world, the UK is 50% off right now, compared to 2008.. your $ goes twice as far to the £. Yet despite this global cities all have outpaced London, which inturn reflects the rest of the UK…in otherwords confidence to invest isnt there.

Right now confidence in the UK is low and actions by government seem to focus on reducing the £ further with the inane belief we can compete with China on price by making the £ cheaper.

The risk is confidence falls too far, and the currency collapses, its unlikely, but its not out of reach.

 

[al78]

I must admit that at the time I remember saying to friends that what we were in at the time was actually the new base level reality…
I bought a house a few weeks before the crash when anything on the market was selling within five minutes of going on the market and I watched the house prices as my property dropped below what I paid for it.
Eventually it crept above that original line and I made some money on it when I sold it, but overall I don’t know if I’m really any better off financially after the best part of 13 years of working my backside off since 2008?

I’ll be interested to see what other people’s experiences are though.

I got very lucky from the crash. I was in the process of upsizing just after the Northern Rock crash. I found an affordable property which ultimately I managed to get nearly 20k knocked off, and I sold my small one bed end terrace for more than I paid for it. With the aid of a financial advisor I got a very good tracker mortgage on the basis the Bank of England were repeatedly talking about interest rate cuts. My mortgage started off at an interest rate around 5% and over the following year went down to around 1% (in recent years even lower). I ended up with a bigger, better located house and a modest 15 year term mortgage that will be paid off 16 months from now. As a result of the interest rate coming down and staying down, and thus having spare cash every month, I started paying into a stocks and shares ISA every month. It is now valued at a six figure sum.

 

[JamesT]

Well yes there is probably some truth in that. Having lived through quite a few recessions in my life now there’s always been a certain pattern.
That one felt different to those other ones though and since then the trajectory of the extremely rich seems to have only headed rapidly upwards whilst everyone else has either stayed at a similar level or slightly gone downwards.

I think what seems to have been the big difference from previous recessions is unemployment. Previously a downturn would result in huge numbers of layoffs whereas this time the flexibility of the workforce has resulted in everyone getting squeezed.

 

[yorksrob]

An interesting and well thought out thread.

I agree with the premise of the thread.

I would also say that Britain hasn't recovered from WW1.

 

[tbtc]

Good question - we've obviously had recessions in the past but we've bounced back from them - it feels like the modern British economy is like a pensioner who's had one too many "falls" and hasn't been able to fully recover - we've not had a subsequent period of paying back national debt or being able to turn the public spending taps back on after the austerity years

I guess that one difference (as alluded to above) is that previous recessions has millions unemployed and dissatisfied (so the Government of the day had an incentive to get them back into jobs, to avoid civil unrest), but now the combination of benefit cuts and zero hour contracts etc mean that millions of people are busy chasing their tails trying to make ends meet with multiple part time jobs, rather than being visible evidence of unemployment - whereas in the 1980s we had recessions in eras when people could "afford" to live on unemployment benefit - the current levels/ requirements have meant a lot of people having to take any work to put food on the table

The other difference is that, pre-2008, ordinary people were buying houses with 105% mortgages - now, many ordinary people can't afford to buy houses until they get close to forty, whilst a small number of people are buy to let landlords able to acquire several houses, partly because of being able to snap them up after people had to sell up in the recession

It feels like, however bad the past thirteen years have been, any talk of economic change is off the agenda - the rich have managed to manage to stop people talking of abandoning the capitalist model that we have - we are too busy with culture wars/ sports/ Netflix etc - they've won

One problem with the term neoliberalism is that it’s thrown about a lot but quite poorly defined. It generally relates to an absence of controls, but nobody can agree on what controls there should be

Agreed - it seems to be shorthand for "things I don't like" (without having to define exactly what it actually is) - there are a few words in the modern political lexicon like this, with you can use as shorthand for "problematic" to make your followers aware that this is A Bad Thing - I've seen lots of historic things described as "neoliberal" too, so it's not even as if it just refers to the way that capitalism has adapted post 2008 crash (e.g. Tony Blair's government was "neoliberal" according to some I know!)

 

[yorksrob]

Neoliberal is an interesting term. When I first heard it out referred to policies of overthrowing despotic governments such as Saddam Hussein's in Iraq.

In the economic sense, it seems to mean laissez-faire global free market capitalism.

 

[Yew]

I always thought it referred to the post-thatcher economic consensus, a reduction in regulation and state control or ownership; which seems to be backed up by wikipedias definition

Neoliberalism - Wikipedia

en.wikipedia.org

Neoliberalism, or neo-liberalism,[1] is a term used to describe the 20th-century resurgence of 19th-century ideas associated with free-market capitalism.[2]: 7 [3] A significant factor in the rise of conservative and libertarian organizations, political parties, and think tanks, and predominately advocated by them,[4][5] it is generally associated with policies of economic liberalization, including privatization, deregulation, globalization, free trade, austerity and reductions in government spending in order to increase the role of the private sector in the economyand society...

Overall, I feel that whilst austerity may have had some effect on public expenditure, the lack of investment has caused a corresponding lack of recovery. A time of low interest rates is a great time to leverage cheap finance to fund investment that will pay off in the longer term; as per Keynesian principles.

Whilst I understand the criticism of Keynes theories in reference to their implementation during the 70's, we must acknowledge that this situation was different, as it was a predominantly financial issue. Whereas the failure in the 70's can be largely considered to be a result of using economic tools to try and solve a political issue, the fuel crisis.

 

[yorksrob]

I always thought it referred to the post-thatcher economic consensus, a reduction in regulation and state control or ownership; which seems to be backed up by wikipedias definition

Neoliberalism - Wikipedia

en.wikipedia.org

Overall, I feel that whilst austerity may have had some effect on public expenditure, the lack of investment has caused a corresponding lack of recovery. A time of low interest rates is a great time to leverage cheap finance to fund investment that will pay off in the longer term; as per Keynesian principles.

Whilst I understand the criticism of Keynes theories in reference to their implementation during the 70's, we must acknowledge that this situation was different, as it was a predominantly financial issue. Whereas the failure in the 70's can be largely considered to be a result of using economic tools to try and solve a political issue, the fuel crisis.

Yes. Keynes was largely correct. If you can get what wealth you have following around the economy more, your population will benefit more.

 

[Sm5]

An interesting and well thought out thread.

I agree with the premise of the thread.

I would also say that Britain hasn't recovered from WW1.

There is a train of thought that suggests the retraction of empire protected the home country, Brexit is in that regard another retraction, as it “brings money home”. The problem is without earning it, your just spending and once its gone, its gone unless you can shut up shop somewhere else and bring it home. The last retraction we had was in the run upto 1997 and Hong Kongs handover (big projects like lan tau, hkg airport, metro, bus renewal, hsbc relocation, business & people relocation etc etc) all benefitted UK economy and businesses, and impressed on the global stage.

From 2001 until 2008 the UK became the place to be, the US trusted the UK for EU business, EU business wanted UK presence, the UAE grew from near desert off the back of British consulting and we exported services everywhere.

Since 2008 until Brexit we had no where to retract from, and all the above has waned. The short term boom we are seeing is a rise in UK jobs that were either previously overseas workers, or former EU roles demoted to UK centric ones.

Good question - we've obviously had recessions in the past but we've bounced back from them - it feels like the modern British economy is like a pensioner who's had one too many "falls" and hasn't been able to fully recover - we've not had a subsequent period of paying back national debt or being able to turn the public spending taps back on after the austerity years

I have a theory (that its mortgaged based), the country had a banking crisis formed on unknown bad loans. The only way for banks to unwind the unknown is to wait until those loans were paid off. if housing collapsed, the financial system would collapse. So this had to be avoided, and cheap money does it.

Most mortgages are 25 years, so from our boom in 2001-2008 those mortgages will be a risk until at least 17 years through putting it circa 2025 before the risk was mitigated.
Low interest rates cancelled a lot of those old loans through remortgaging Reducing it faster but creating a housing bubble, the very risk I think in 2008 they were hoping to avoid.

However Brexit was not forseen in 2008, and our risk exposure is probably greater now than it was in 2008, with all that house price inflation and government debt added in. Now add Covid to that pile.
In other words, banks still lend in fear, live off cheap cash and have considerable stock piles.

A “nice” solution to this would a war loan for 100+ years, with a premium bond bonus., wrap up Brexit, Covid and a good chunk of “mk2 Boris/Marshall plan“ into it. Tie it to capital gains, Inheritence tax and profits on investments in the new “Marshall plan”, assuming the government invests a silent share in businesses to deliver, rather than just handing out cash for contracts/favours etc
That gets rid of the extra debt, putting up interest rates slows housing and inflation eats the value of the cash. For the oink on the street, theres nothing much good in it, unless pay rises go around (but interest rate rises are supposed to slow that).
just theory, no doubt someone will blow chunks into it.