Crisis and Recovery

The sun was breaking through the clouds in Washington DC when Franklin Roosevelt gave his inaugural presidential address. It was Saturday 4 March 1933 and the United States had just started the slow ascent from the bottom of the economic abyss to which it had sunk in the three years after the Wall Street Crash of 1929. A 50% drop in industrial production meant that factories lay idle and with a quarter of the working population jobless, the dole queue was a feature of every American city. Nor was the malaise confined to the world’s biggest economy; the crisis had put paid to the minority Labour government in Britain 18 months previously, while in Germany, a new chancellor, Adolf Hitler, had been in power for little more than a month. A week earlier fire had destroyed the Reichstag building.

It is quite striking that in the gospel parables Jesus more than once uses the world of economics as a framework for his stories — the parable of the talents, the dishonest steward, even, we might say, the little vignette of the lost coin. Like farming, like family relationships, like the tensions of public political life, economic relations have something to say to us about how we see our humanity in the context of God’s action. Money is a metaphor alongside other things; our money transactions, like our family connections and our farming and fishing labors, bring out features of our human condition that, rightly understood, tell us something of how we might see our relation to God and God’s to us. A story about how people do and don’t take risks with what they have been given or about an eccentric landowner who insists on paying all his employees the same wage, however long or hard they have been working, becomes a window into the strangeness of God — like the stories about broken families, careless farmers sowing seed all over the place or unwelcome and disgusting foreigners offering life-saving compassion when the usual neighbors are nowhere to be seen.

At the heart of Keynes’s remedy for the deep fluctuations in the capitalist economy was a large and continuing role for state investment. In the General Theory of Employment, Interest and Money, he wrote:

I expect to see the State … taking an ever greater responsibility for directly organizing investment [and] I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment. ¹

These were the two definite policy proposals of the book. The General Theory was not about policy. It aimed to provide an explanation, in terms of fundamental theory, of persisting underuse of potential resources, especially labor. The role Keynes gave the state in investment was a consequence of his “general theory” of employment. It stood or fell by the validity of the theory.

The financial crisis has taken Britain to the brink. Look down into the abyss and see reflected the country we have become. There is increasingly entrenched wealth for the few, verging on the dynastic in some cases, alongside some of the highest levels of poverty and inequality in Europe. There is more home ownership, but no investment in housing for the next generation and now a scandalous national housing crisis. We live in a consumer wonderland, but stagnant wages have led to unprecedented levels of personal debt. And amid the glittering baubles is a society in which trust has declined, and our democracy and liberties have been diminished. We are at risk of becoming a society stricken by loneliness and increasing levels of mental illness. Our economy grew on bubbles and speculation. Whole regions of the country are dependent upon public spending because business will not invest in the future economy. The boom was a false prosperity that lined the pockets of the business elite. The bank bailout socialized the huge losses but left control and the profit in private hands: did the government nationalize the banks or did the banks privatize the government?

What is remarkable about this economic crisis and the unprecedented economic and ideological shifts it has initiated is that so few saw it coming. Previously, anticipations of disaster were felt 10 or even 20 years before they happened. The First World War was already feared in the 1890s, and the Second World War was already predicated after the end of the first. Likewise, the withdrawal from the gold standard, the collapse of Bretton Woods and, indeed, the final collapse in 1979 of the failing and failed postwar British settlement were all seen by the cognoscenti a good decade before the final denouement.

Having been asleep for over 20 years, the old battle between individualist and collectivist has been woken by a crash. Suddenly, a debate, which seemed to have been settled in favor of the individualist point of view, has sprung back to life.

Investment banking is a necessity in the modern economy. It enables companies and governments to finance and carry out increasingly global activities. It offers significant rewards to some investment bankers. It is vulnerable to abuse and the relentless pursuit of money and, by implication, power. Can it be ethical or is it intrinsically unethical, given the huge temptations?

My aim in this essay is to look at the specifically cultural issues underlying the recent financial crisis. My theme is that certain cultural trends were highly significant in the emergence of the crisis, and that although these trends are powerful, it is both possible and legitimate to try to change them, and while this may involve action by policy makers, ultimately, cultural change will depend on market participants themselves. I should make plain that this essay does not result from objective research, but from a personal perspective, designed as a stimulus and contribution to a wider debate, and based on my experience as a financial markets lawyer and regulator.

There can be no doubt at all that the natural world, on which we all depend for each and every one of our needs, is in serious trouble. Yes, we can argue about aspects of climate science, and, yes, we can quibble with some of the predictions. After all, there is no computer model in the world that can truly take into account the full complexity of ecological systems. But the looming environmental crisis is a basic observation, not a theory.

Plato first argued the case for proportionality — and it is telling that justice in so many cultures is signified by a pair of scales. Retribution should be proportional to the crime. But so should reward be proportional to our extra effort. It is a fundamental part of human beings’ hard-wiring. The scales symbolically declare that justice is getting our due and proportional deserts.