The New Normal

The questions posed by the financial crisis remain unanswered

Someone born in Britain in 1990, as I was, turned 18 in 2008 having never known a recession. My childhood coincided with the West’s long boom. Economic output expanded in the UK, without interruption, from 1992 until 2008. The whole world, not just Britain, was growing apace. If the fall of the Berlin Wall raised the curtain on this era of prosperity, then the bankruptcy of Lehman Brothers in September 2008 ended it.

The sage of the boom was Alan Greenspan, the chairman of the Federal Reserve for 20 years who had an intoxicating confidence in the efficiency of markets. In 2007 Greenspan published his memoirs, calling them The Age of Turbulence, a title that would prove more accurate as a description of what was to come than what had already passed. Testifying to the US Congress a month after the Lehman Brothers bankruptcy, Greenspan was stunned by what had happened to the world he had helped to build.  He said he had found a “flaw in the model that I perceived is the critical functioning structure that defines how the world works”. The scientific parlance doesn’t disguise his shock; here was an octogenarian questioning what he had spent his whole life trying to prove to be true. He would later revise his theory: people, he came to argue, aren’t quite as rational as he once thought. If this fundamentalist was having doubts, what were the agnostics supposed to make of the crash and all that followed?

Making sense of the crash is a good working definition of what Standpoint has aimed to do in its economics coverage. Founded in 2008, the magazine has known only economic tumult. As well as questioning the efficacy of policy decisions made since the crash, our contributors have probed further, getting to the moral essence of recent events. In the background loom the giants of economic thought. The legacies of Keynes, Smith, Hayek, Bagehot and Marx are all considered in this ebook. “What would Keynes do?” ask Robert Skidelsky and Tim Congdon while Gertrude Himmelfarb reconsiders Adam Smith’s invisible hand.

The initial convulsions of the financial system are only the first chapter of this tale. The most important questions soon concerned the viability of high levels of Government debt and the future of the eurozone. Standpoint writers have followed the story and this ebook deals with the financial crisis in all its manifestations. An assortment of economic breeds contribute to Chronicling the Crash. Devout Hayekians appear alongside life-long Keynesians; a prominent Labour MP writes on one page, a Thatcherite policy wonk on the next. What unites the authors is their determination to untangle the economic knot Western governments have tied.

It is now five years since the crash began. We are poorer than we were at the beginning of 2008, when UK GDP peaked. GDP may be beginning to rise again but Britain, and the rest of the West, still face economic uncertainty. The government is borrowing too much. The eurozone has not found answers to questions of existential importance. Washington politics makes the world’s largest economy the laughing stock of its rivals. In the longer term, a new economic reality looms. My generation grew up not knowing recession, came of age during the crash and will likely spend their adult lives poorer than their parents and grandparents. If this is to be the new normal then the questions posed in Chronicling the Crash are as important as ever.

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