Confessions of an Economic Simpleton

I have two degrees in economics, but I have never really known what to do with them. I never became an economist, you see – I didn’t quite grasp the arcane niceties of the subject. Or rather, I was too much of a simpleton to become an economist.

Over the past few days I have been trailing a series of tweets on Twitter, about an Economic Simpleton’s view of the global financial crisis and its never-ending aftermath. Let me bring all those thoughts together.

Here’s the first thing that bothers the Economic Simpleton: the causes of the financial crisis seem rather straightforward. Lots of banks, insurance companies and other intermediaries constructed products that should never have been allowed. They consolidated “sub-prime” mortgages and credit (read: loans that in all likelihood wouldn’t be repaid) into fancy-sounding packages and sold them on. These products spread like a cancer through the financial system, until one day the underlying borrowers (ordinary people, mostly) began defaulting. Then the whole system fell like a house of cards.

And yet the Simpleton can’t see many of the people responsible – bankers, chief executives, boards of directors, regulators, political leaders – paying any meaningful price. At worst, they were sacked – but mostly with seriously large nest-eggs with which to cruise into a life of leisure.

The second thing that troubles the Economic Simpleton’s modest mind: before the crisis, there were two kinds of ordinary people. The first were prudent, didn’t buy what they couldn’t afford, didn’t borrow money to live beyond their means, and saved money for a rainy day like they’d always been told to. The second type thought: “To hell with hard work and waiting forever, I get offered new mortgages, credit cards and holiday loans all the time. Live for today!”

The second type, in collusion with the lenders, caused the crisis. And guess who carries the can? The sensible, prudent mugs, of course. Some of them lost all their retirement savings when the likes of Lehman Brothers and others vanished into thin air. Others saw their sensibly invested savings destroyed by global equity crashes that were nothing to do with them. And those with money in the bank found that their interest returns became close to nil overnight.

After the crisis, the Economic Simpleton saw a worldwide bailout of failing banks and flailing companies by governments – to prevent an even greater collapse, he was told. The Simpleton wondered where all this money would come from, but was told governments could borrow without real consequences. It occurred to the Simpleton that everything borrowed must be repaid someday by someone – probably our children and grandchildren.

And now the Simpleton observes the worldwide fashion for “austerity.” Having binged like gluttons and alcoholics on easy credit, the world’s opinion-shapers are now preaching the tightening of belts, the values of prudence and thrift, pain today for gain tomorrow. Except whose belt is it that is being tightened? Ah, we’re back to the ordinary, sensible people again. Nurses and government workers being sent home; cancelled spending on public projects.

Meanwhile the same financial regulators who allowed the whole economic casino to happen; who failed to read any of the warning signs; who failed to rein in the excesses of speculative markets – those same regulators remain in charge, talking the good talk. Meanwhile, bankers felt unable to restrain themselves from demanding bonuses for more than a few months, and are back to earning boom-era remuneration again.

And so, the Economic Simpleton wonders: what did we learn? If there are no consequences for those who brought us down, and no reward for those who did the right thing, then where will we go from here? Ah, but it’s all very complicated, isn’t it – just trust those in charge to get it right. Surely they know what they’re doing…

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