An Historian

historical stuff by Gareth Millward


2008 – The Great Recession


29 September 2008 – New York

The economic climate of the early twenty-first century will be explained with reference to the stock market crash in 2008. Because exactly the same circumstances that allowed the economy to grow so much over the 2000s led to the recession that continues to affect the Western world.

Boom and bust cycles are nothing new. It is one of those inevitable laws of capitalism – whether you’re a Marxist or not. Speculation creates bubbles, and those bubbles can burst. It’s happened with tulips, South American trade monopolies, and good old fashioned stocks and shares. This time, it was through ‘sub prime mortgages’.

This is a technical term for lending money to people to purchase their own homes when you know:

a) their houses are worth fuck all and;
b) they don’t have the money to pay you back.

The idea was that these debts could be sold on, creating enough money that if someone defaulted on their payments, the owner of the debt could repossess the house and start the cycle again.

Who could have possibly predicted that if the economy slowed, people with no money and houses worth nothing would default?

As Andy Zaltzman put it (to paraphrase):

It’s like slamming your testicles in a car door. Until you actually do it, you don’t know that it will hurt.

Similar schemes for speculation, using weird financial “products” had been used for years to prop up the financial sector. Which wouldn’t necessarily have been a problem – except many Western nations had become increasingly reliant upon finance to keep their economies expanding. Successive governments, especially in the UK and US, had relaxed financial rules, allowing even greater speculation.

Moreover, it had become deliberate policy to move what had been public services into the private sector as a means of reducing the national budget and making the economy more “competitive”. This meant that many countries required private investment in “public” projects – and that meant trying desperately to keep the financial markets happy by lowering taxes, reducing burdensome paperwork, and handing contracts to the lowest bidders.

Caroline Lucas, Jeremy Corbyn and Nigel Farage. Each, in different ways, enjoying electoral success as an "alternative" to the pre-2008 status quo. (Sources: left | centre | right)

Caroline Lucas, Jeremy Corbyn and Nigel Farage. Each, in different ways, enjoying electoral success as an “alternative” to the pre-2008 status quo.
(Sources: left | centre | right)

This has had a somewhat interesting effect on politics in many of these nations. Some, like Greece, were almost completely wiped out, lacking enough of a financial base to cope with the storm. Others were able to bail out their banks and continue investment to drag themselves out of the hole, like Germany and the United States. Still others jailed those who had caused the crash, devalued their currency and made a strong recovery, like Iceland. Britain… kinda just kept doing what it had been doing.

After years without a true recovery – at least one that those in the middle of the country could notice in terms of rising wages and higher standards of living – the traditional party political allegiances have started to fall apart. This, if anything, shows us that Fukuyama was wrong. History is still alive and kicking.

Let’s look at Britain.

On the left, parties promoting greater public involvement in the economy and on matters of social justice have received a resurgence. Rejecting the “Blairite” model of gradual reform within a technocratic, liberal economy, the Green Party has made major strides, allying more-traditional leftism with environmental and identity politics concerns. Labour has just elected a left-leaning leader too, much to the chagrin of the old guard.

On the right, a general sense that liberalism has eroded British values and – perhaps more pertinently – the living standards of the middle classes has led to the rise of anti-establishment voices. While their leader may be a middle-class financier, UKIP’s core support has come from those who feel that the European Union and “Thatcherite” mainstream politics has left them vulnerable to outside threats.

For the next decade, the political landscape in the West will be very interesting. Clearly, the post-1980 consensus is breaking down. But quite how it will resolve itself is anyone’s guess. In any event, the 2008 crash is one of the pivotal moments in that history.

This post was originally published on 14 September 2015. The publication date has been changed to maintain the post order.
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