No one who saw the roaring boys of the City in the early twenty-first century, or watched the gurgling presenters of the ‘property porn’ shows, could doubt him.*
On this reading, all bubble markets are the same. The bust of 2008 was no different to the South Sea Bubble of 1720, which ruined early Georgian London, or the railway share mania of 1845, or the Great Crash of 1929, or the slower unwinding of the Japanese market in the nineties. ‘Progress is cumulative in science, but cyclical in finance,’ wrote the economic analyst James Grant in 1993, and there is a strong temptation to respond to the crash of our day with banalities about there being nothing new under the sun.
The politicians, the speculators, the bankers and the crowds of mad investors did not see the crash coming, but then their predecessors did not realise that the South Sea Bubble was about to burst. What’s new?
Not much sounds a fair answer, but it pays no attention to the nagging difference. This time around, a left-wing government ignored a monstrous bubble.
Its behaviour needs explaining because, contrary to cliché, 2007 saw something new under the sun.
LOOKING BACK AT the ruins, I can see faults in my writings from the bubble years. I have never been interested in consumerism, never seen shopping as anything other than a chore, and I suppose I underestimated the happiness the boom brought to many. In theory, I know that distress brings no good and poverty inspires no nobility. In practice, I find misery interesting and contentment dull. Like most writers, I instinctively believe Tolstoy’s assertion that while ‘all happy families are alike; each unhappy family is unhappy in its own way’—and do not want to remind myself that happiness comes in many forms while desolation in its final stages is grindingly uniform.
Therefore, and in fairness, I ought to balance what follows by acknowledging that the period this book covers was not all bad. The British were richer than they had ever been. Between 2003 and 2007, national income per head grew faster in Britain than in any other developed country. The formerly privileged complained of downward mobility, but the debt bubble, like every other bubble, created upward mobility and allowed City boys from humble homes to leap the fences of old England. I also accept that if money could not buy the British happiness, it at least allowed them to be miserable in greater comfort. We lived longer and enjoyed greater access to education and health-care. We were free to read what we wanted, sleep with whom we wanted, think what we wanted and live where we wanted and how we wanted. Our Labour leaders had reason to be proud. They could walk into any town, see new schools and surgeries, and think ‘we built those’. They did not damn the flood of wealth in London, but used it to revitalise Britain. The boom brought the best of modern urban architecture to once forlorn provincial cities. Manchester was a grim northern town when I grew up there in the seventies. Birmingham had had the life beaten out of it by the collapse of manufacturing industry when I took my first job there in the eighties. The Labour years transformed both for the better.
I make no further apologies for the tone of this book, however. Writing in 1931, Frederick Allen Lewis rightly feared that people would one day think of the Jazz Age of the twenties as the good old days and ‘would forget, perhaps, the frustrated hopes that followed the [First World] War, the aching disillusionment of the hard-boiled era, its oily scandals, its spiritual paralysis, the harshness of its gaiety’.
I hope that no one will forget that the years before 2008 had oily scandals and aching disillusionments of their own. Even before the crash, it was obvious to me that for all its benefits globalisation was battering Britain. As the nation-state disintegrated, we did not know what to call ourselves, ‘British’, ‘English’, ‘Scots’, ‘Welsh’.* The immigrants brought in by the boom changed the country, and neither the right nor the left understood how to think clearly about coping with the concomitant social tensions. Increased wealth and better health created citizens who seemed to believe that death was optional and the human condition escapable. They made impossibly authoritarian demands for the state to follow the precautionary principle and guarantee that they would never suffer accidents or harm.
Above all else towered the misery brought by asset-price inflation, as housing, one of life’s necessities, became nonsensically dear.
London was as close to being the financial centre of globalisation as anywhere in the world could claim to be. With the City accounting for a fifth of the British economy, the political left cut a deal.
I don’t want to accuse it of ‘selling out’. However shamelessly Tony Blair and Peter Mandelson welcomed the super-rich into Downing Street and accepted invitations to their Mediterranean villas in return, however cravenly Gordon Brown capitulated to demands from billionaires to provide them with privileges, the paradox of the 1997 Labour government was that it was at once a left-and a right-wing administration. It wanted a huge public works programme. It aimed to redistribute enormous amounts of wealth. To achieve both these desirable goals, it made a bargain with the markets.
All right, the political left said, we will accept extremes of wealth we once denounced as obscene. We will embrace your speculators and not drive them overseas with tough regulation. If the authorities overseeing the Wall Street markets or the Frankfurt bourse become too inquisitive, capital will always be able to find a sanctuary from scrutiny here. Nor will we restrict the operations of financial services, even though they are entrapping our supporters in levels of debt that the puritan in us finds frightening. We will concede all this, if in return you will give us the tax revenues which will allow us to the build the new schools and hospitals, and increase the incomes of our struggling constituents.
For all its virtuous intentions, the political left was living off the proceeds of loose financial morals. Prostituting itself, to be blunt.
The brightest and the best graduates went to work for City firms. By 2007, politicians of all colours regarded them as their intellectual superiors, modern alchemists who could conjure gold out of lines of flickering figures on a screen. Ken Livingstone, the allegedly left-wing mayor of London, genuflected before the cardinals of the money market with as much reverence as any Tory. If he had had his way, London would have become a Shanghai-on-Thames, its skyline punctured by gleaming towers for the bankers and dealers he assumed would always be landing at Heathrow.
The anti-capitalist movement had nothing interesting to say about high finance, but spitefully concentrated on opposing free trade, the one neoliberal policy that raised the living standards of the world’s poor. Everyone else was lulled into acquiescence by the success of globalisation. Young radicals from Gordon Brown’s generation did not abandon socialism because they ‘sold out’, they abandoned it because they saw that socialist societies produced stagnant economies, along with some of the worst crimes in human history, while market economies not only worked but produced the revenues social democrats could use for leftish ends. The British economy had been growing since the collapse of the Soviet Union in the early nineties. Like so many others, Britain’s social democratic leaders came to take growth for granted and forgot that no one can abolish the business cycle.
In his March 2007 budget, Gordon Brown described a happy land of ‘rising employment and rising investment; continuing low inflation, and low interest and mortgage rates’. The ‘longest period of economic stability and sustained growth in our country’s history’ was marching on, bringing ‘prosperity and fairness for Britain’s families…We will never return to the old boom and bust!’
In the same month, the International Monetary Fund issued a prophetic warning. By encouraging the UK economy to become dependent on international financial markets, it said, Brown ran the risk of a global financial contagion infecting a country that was already drowning in debt and in no fit state to cope with hard times.
The government took no notice. As late as April 2008, Labour MPs fell about