The Daily Reckoning UK

A Dutchman’s Day In Parliament

Pieter Cranenbroek

by

Posted 15th March 2017

Big Ben strikes once on a drizzly London morning.

It’s half eight and, having just turned a corner, I can now make out the tower that’s harboured the famous clock for centuries.

Today my working day kicks off at the Palace of Westminster, which is a nice change of pace from the ordinary office buildings I usually spend my days in.

Once the place where the royal family resided, the palace has long since become the symbol of the country’s democracy, in so far brick and mortar can embody such a concept.

Just like practicing faith isn’t restricted to churches, democracy cannot only exist in majestic buildings. It needs to be present in the streets too – something a protestor makes me aware of by handing me a leaflet outside parliament.

I look at the date and realise it’s 8 March, the day the Lords are due to vote on the EU Bill. But, since it’s not the reason for my visit, I don’t give it any more thought.

I’m there to listen to Professor Steve Keen speaking about what caused the 2008 crisis and whether he thinks it likely that there will be another one.

The committee room where the talk is being held is already quite packed, but I find a seat right under a painting of a 19th century Liberal politician whose name eludes me.

I gaze at the painting of ‘The Flight of the Five Members 1642’ by John Seymour Lucas directly in front of me and wonder about the curious design of the room.

The benches are facing in three different directions, which strikes me as impractical, though perhaps to some people arguing is easier when they don’t have to look people in the eye.

Then suddenly the room quiets down. The talking first changes into murmur and then the noise dies out altogether.

Professor Keen first introduces himself by telling the audience what he’s not: a mainstream economist.

Mainstream economists, I learn, believe financial crises are impossible to predict. Like the Ptolemaic astronomers who believed comets appeared at random, these economists can’t see order in the chaos because they’re using the wrong model.

“The mainstream didn’t see the crisis coming. Not because it couldn’t be seen, but because they were ignoring the key issue in the battle, which is banks’ capacity to create money and, by that, create additional demand.”

A number of economists outside the mainstream, however, did predict the crisis by looking at the role of credit in the economy.

In Britain it all started when Margaret Thatcher came to power.

Up to the 1980s there had been no discernible trend in the country’s debt to GDP ratio for a hundred years. Then between 1980 and 2010 the level of private debt nearly trebled.

Thatcher’s right-to-buy scheme as well as the introduction of student loans are among the policies that made private debt spiral upwards.

Britain’s debt to GDP stabilised under John Major’s government, but it jerked up again during New Labour’s time in office.

Despite the swiftness of the presentation, there’s no way to miss the central point Keen wants to hammer home: we’re not even nearly out of the woods yet when it comes to a new financial crisis.

A credit boom was among the primary causes of the biggest crisis since the Great Depression. By failing to include credit in their economic models, mainstream economists weren’t able to pull on the brakes when the situation became explosive.

“What has actually happened is that they’ve enabled the highest level of private debt in the history of capitalism to accumulate.”

Though the level of debt looks to have come down since the crisis, Keen isn’t particularly optimistic about the situation we’re in today.

Despite that we’re nearly a decade on from the start of the crisis, the global economy doesn’t feel a whole lot more stable.

No matter the assurances from central banks and governments that we’re in a better position since then, it doesn’t feel like it.

Professor Keen does little to reassure us that gut feeling might be wrong as he claims Britain and the US haven’t de-levered enough since the crisis.

“We’re still at 90% of the level of private debt that applied when the crisis hit and it’s rising at the moment. We haven’t got rid of the deadweight of the debt we accumulated during the previous crash.”

We’re still in a very dangerous situation and private debt levels will have to come down to ease conditions. Unfortunately, private debt has started to go up again.

One of the slides seems to pretty much sum it all up: ‘Things can’t continue as normal, when normal involves an unsustainable trend in debt.’

I exit the Houses of Parliament with a few colleagues who attended the talk with me.

The weather’s cleared up, yet the sun still struggles to come through.

It’s neither warm nor cold. That ‘in between’ weather where you’re not entirely sure how to dress.

The rain has stopped, for now, but no one dares open their coat. For in the distance dark clouds are forming and headed our way.

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