New economic crisis and same old problem

The other day I quoted Paul Valéry (d. 1945) who said that lessons of history are never heeded. He probably meant times olden, but in our own time history is compressed and accelerated.

Never mind learning the lessons of centuries ago – we today are so advanced that we can successfully ignore the didactic value of the economic crisis that supposedly ended in 2008-2009.

Oh we know exactly what caused it: a bubble of public and personal indebtedness, burgeoning money supply taking reality out of currency, irresponsible banks flogging unsecured mortgages and piling layers of derivatives sometimes amounting to 10-15 times the underlying market value of the collateral. In 2008 the combined value of outstanding derivatives equalled three times the GDP of the whole world.

But learning the aetiology of a disease isn’t tantamount to treating it, or preventing a relapse. It’s in this sense that the lessons of 2008 have never been learned.

Personal indebtedness in Britain is growing at the same pace as in the run-up to that calamity. So is our national debt: it has grown from about 80 per cent of GDP then to over 90 per cent now (so much for austerity).

Banks are dangling unsecured low-interest loans before people’s eyes, which predictably light up with acquisitive zeal. New cars, exotic holidays, expensive consumer goods are all being bought on credit with nary a thought for tomorrow. This isn’t just us: in the 10 years preceding the 2008 crisis, personal expenditure in the US had run at three times personal income.

In Britain households are borrowing over £1 billion each month. In total, household debt stands at almost £200 billion, excluding mortgages. Actually, most people don’t take mortgages into consideration, seeing them as sound investment because house values always go up. This ignores Isaac Newton, with his sound observation of things that go up only to come down in due course.

The economic problem is so obvious that even economists, whose crystal ball tends to be murky, are talking about a new bubble swelling and a new crisis looming. Yet the way they put it shows that they don’t understand the situation well enough to offer a practical solution.

For, just like its predecessor, the looming crisis is neither new nor economic. In the sense that it’s woven into the very fabric of modern society, it isn’t new. In the sense that its causes are moral and existential, it isn’t economic.

Because economics is really a study of human behaviour, it’s closer to the humanities than to natural science or maths. It’s human nature, when it’s unfettered by moral restraints, that causes crises, not any immutable economic laws or government policies.

Somewhere along the way we’ve lost eschatology, the realisation that life has an ultimate meaning that extends beyond our earthly existence. Hence it’s the process of life that illogically has got to be seen as its meaning.

Rather than preparing ourselves for eternity, we try to cram as much comfort and pleasure into every waking moment. America’s Founders called this process ‘the pursuit of happiness’, while today we more accurately refer to it as seeking instant gratification.

Just as our progenitors pursued their ultimate goal, so are we pursuing ours, sweeping all obstacles aside. One such obstacle is the lamentably gaping chasm between our incomes and our appetites, and all modern economies are designed to bridge this gap.

That’s why most Western governments manage their finances on the same pyramid-scheme principles that a few years ago landed Bernie Madoff in prison for a surreal term. That’s why they run up national debts that can never be repaid (servicing our debt already costs more than we spend on defence). That’s why individual Westerners pile up debts driving them into bankruptcy and insolvency. That’s why bankers lend irresponsibly, trying to drive their bonuses up.

As always, economists try to explain the world in the terms of their own profession. But the world can’t be squeezed into such narrow confines. It stubbornly refutes theories and rejects remedies. It keeps reminding us that the economy is merely an aspect of human behaviour, and not the most important aspect at that.

With apologies for self-quoting, this is how I put it in my 2011 book The Crisis Behind Our Crisis:

“We have replaced religion with (at best) religionism, freedom with liberty, wisdom with cleverness, sentiment with sentimentality, justice with legalism, art with pickled animals, music with amplified noise, statecraft with politicking, love with sex, communication with sound bytes, self-confidence with effrontery, equality before God with levelling, respect for others with political correctness, dignity with amour propre – in short, everything real with virtual caricatures. We now live in a virtual world – so is it at all surprising that we live on virtual money?”

We already know that the economic crisis is systemic, not symptomatic, and its next act is just round the corner. We don’t know how calamitous it’ll be, but such crises tend to outdo their predecessors. Meanwhile, back to the really important news of Leonard DiCaprio finally winning an Oscar.