A decade ago we all knew that there was an economic crisis. Banks were collapsing. Credit was drying up. Bankruptcies. Job losses. Escalating budget deficits. A big drop in the currency. You didn’t need a Nobel Prize in economics to realise that something was terribly amiss. It was the biggest financial crisis in over a century, and the biggest drop in production and incomes since the interwar period.
Six years on: the end of the Coalition.
Were we still in crisis mode or not? On the one hand: a rapid recovery in the economy; a big drop in unemployment; lots of investment, business start-ups and general optimism. But also wages (accounting for inflation) lower than before the crisis, the pain of years of cuts in public spending; austerity.
We are now in a very unusual economic environment.
My preferred metaphor was that the economy had suffered the economic equivalent of a heart attack. It had survived but was still attached to the life-saving drip feed of ultra-cheap and abundant artificial money.
Then to the EU referendum.
Armageddon didn’t happen. But there was the biggest devaluation since the war and subsequent cuts in living standards from the cost of imported goods. A lot of uncertainty, leading three years later to the present state of extreme political uncertainty, paralysis of decision-making in government and Parliament and investors stalling on investment.
We are now in a very unusual economic environment which doesn’t easily fit with what most of us see taught or teach, and appears in economic textbooks.
First of all, there appears to be emerging, based on particular data, a recession defined as two successive quarters of falling output. But it is an economy very close to full employment. The popular view of recession is of slump and long dole queues. That may be to come. But we seem to be entering a different kind of recession in which output falls, not because of a lack of demand-spending, but because of restrictions in supply: labour and skill shortages; lack of ability or willingness by companies to invest in the capacity to produce more goods and services.
The likelihood is that what we are seeing is a pre-slump.
The big shock of a ‘no deal’ or ‘hard’ Brexit – if a new PM were to succeed in making it happen – will produce a very sharp fall in the economy. The new enthusiasm from leading Conservatives, as well as Labour, for populist, deficit financed budgets will further erode confidence in the economy.
The Bank of England will be under intense pressure both to raise interest rates to stop currency collapse and to cut them further to keep the economy afloat: an acute dilemma which could open the way to a more politically pliant Governor, and further loss of confidence.
Mr Johnson may be leading us into a wasted decade.
As the currency tumbles, import costs rise cutting living standards. With weak domestic spending, little investment, EU markets disappearing and other overseas markets closing because of trade and currency warfare we are then set fair for a full-scale slump. Add in some highly leveraged companies and property and – still- high government debt levels, the risks are increased and the freedom to manoeuvre reduced.
Mr Johnson may be leading us into a ‘wasted decade’ worse than the financial crisis.
On a personal level I have been preparing for the handover to a new party leader.
A lot of warm words and genuine affection from colleagues, party activists and members of the public who give me credit for going out on a high, with the prospects for a big breakthrough for the party after the local and Euro elections.
I have been undertaking a final round of leader’s visits across the country, celebrating the real heroes of our campaigning and our success – the grassroots activists.
I have been to Brecon where a major by-election victory is within grasp. Then to Coventry to visit the massive Bhattacharya centre at Warwick University, where 1000 engineers are working on a new generation of electrical and autonomous vehicles: this is one of the really solid Coalition legacies from the industrial strategy and the catapult network. And finally to the Westcountry, to Taunton and Wells in Somerset where the Lib Dem revival is in full swing and parliamentary gains for Gideon Amos and Tessa Munt are in prospect.
On Monday, we shall know who our new leader is.
I look forward to working with them, and with members all round the country, to build on our present success, to stop Brexit and to bring about a liberal, social democratic, internationalist Britain of which we can all be proud.