"This is a crisis that started in the finance industry and is now spreading to the high street." Words to this effect, e.g. "Wall Street to Main Street" in U.S. parlance, are everywhere in the media.
They are repeated so often in our media that one could be forgiven for believing them.
In fact, the opposite is true. Fundamentally, this crisis is about the collapse of Western competitiveness. Just 40 years ago the G7 accounted for 80% of world GDP. It could justifiably speak for the whole world. Today it is just 40%, not even a majority. This is the true root of our present crisis.
Despite the decline in our relative wealth and power, we have carried on behaving as if we still ruled the world (if not militarily then at least economically). When we could no longer afford the luxuries we were used to, instead of doing without or working harder, we simply borrowed. Even if we didn't borrow ourselves, we elected legislators to borrow on our behalf.
Clearly, this was never going to be sustainable. Also, no politician was going to get elected if he simply promised to get people's children to pay for their debts. So a way of camouflaging the debt had to be found.
Banks, at the behest of our governments, have therefore done an excellent job of covering up the decline of the West relative to the East, and even to the Middle East. Miles of red tape and a hugely bloated state for years seemed to make no different to living standards in Europe and the U.S. It seemed perhaps that socialism was right: in defiance of the belief of old-fashioned people, perhaps all these regulations and taxes really did help growth. Perhaps the 30 hour week in France just didn't go far enough.
To understand that we haven't even come to the end of the beginning of this crisis, one needs to ask what questions were important in previous crises that aren't even being mentioned today? What dead moose is in the room, which until it is faced up to the problem can't even begin to be addressed? Well, it turns out there isn't just one dead moose but a whole family:
- Western productivity.
- The balance of payments.
Only when our body politic faces up to the crisis in every one of these points, will we know we are past the initial stage of denial.