Are we heading for another economic crash?

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A close up of a page from the Financial Times

Dr Susan Newman, Senior Lecturer in Economics, is interviewed by State of Nature

State of Nature, the blog dedicated to interviews with leading thinkers in social and political theory, interviewed Dr Newman in January. Here she responds to the question: “Are we heading for another economic crash?”

I was approached by the editors of State of Nature to contribute to their monthly series “One Question”. I was asked to join thinkers such as Wolfgang Streeck, David Kotz, Mary Mellor and Richard Murphy amongst others to contribute a 300word response to the question, “Are we heading for another economic crash?”. In doing so, I was able to highlight some of the excellent work conducted by my colleagues at UWE as part of my contribution which is reproduced below. The full set of responses by international thinkers can be found here.

We are heading for another economic crash because the underlying conditions that brought about the financial crisis of 2007-8 remain. The post crisis slump saw the restructuring of capital, aided by government and central bank policies, in order to restore profitability and the incomes and wealth of the 1% premised upon fictitious accumulation.

Speculative finance continues to dominate economic activities in the advanced capitalist economies. Corporate profits, personal wealth, pension provision and food prices, continue to be tied to the vagaries of finance. The IMF’s growth projections for 2018 recognise that modest growth will be driven by financial markets with little impact on real investment, job creation, productivity or wages. Stock market capitalisation to GDP ratio is higher than at any time except for the eve of the dot.com bust in 2000 indicating the disconnection between financial investment and productive activities. In spite of Basel III, the financial system continues to be characterised by high leveraging and global interconnectedness owing to the rise of the shadow banking system.

Austerity in the UK since 2010 has created new trigger points for crises. Personal debt in the UK has reached alarming and unsustainable levels in excess of £200bn. Welfare cuts, stagnant wages and the deterioration of employment contracts has meant that low income families in the UK have had to borrow for basic day to day expenditures. One can expect many more cracks in the system in which the next crisis will emerge. However, rather than trying to predict the timing or origins of impending crises, efforts would be more productively oriented towards radical change of the economic system. Reforms such as those that supported the Golden Age could help temper some of the deadliest side effects of capitalist growth. But in the long run we need to treat those side effects as the main goals for society: for each of us to reach our full potential and live in material comfort free from alienation from each other and our environment.

 

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