I wonder what Will Hutton, writer on economic affairs, chief executive of the Work Foundation and former editor-in-chief of The Observer thought at breakfast this morning as he scanned today’s financial headlines, where the talk is all gloom and doom? Just two days ago, in Sunday’s Observer, Hutton argued that the US economy was showing the world the way forward, despite all the evidence to the contrary.
“The US economy is certainly in transition,” Hutton wrote , “made vastly more difficult by the spreading impact of the credit crunch. But the underlying story is much stronger. The country is developing the prototypical knowledge economy of the 21st century, an economy in which the division between manufacturing and services becomes less clear cut, in a world where the deployment of knowledge, brain power and problem-solving are the sources of wealth generation …” Here, Hutton claims, “the US is so far ahead of the rest of the world it is painful”.
And so we now we know. The answer to the global financial and economic crisis lies in ignoring its actual source – the unleashing of vast amounts of unsecured credit to drive growth and enhance the balance sheets of the global corporations. Ignore the fact that it was the generation of vast amounts of financial products of all kinds that widened the gulf between fantasy finance and the actual generation of tangible value by real human beings acting in the physical world.
Hutton’s sanguine belief in the ability of the US capitalism to lead the world out of economic turmoil is not borne out by the latest raft of reports and statistics. The price of goods leaving Britain's factories rose at the fastest level in more than 20 years last month as soaring food and fuel bills pushed up the cost of production, according to the Office for National Statistics.
“Banks losses to hit public finances - £2.5 bn could be cut from Treasury receipts” and “Mounting signs of economic slowdown” are from the Financial Times this week while the Royal Institute of Chartered Surveyors says confidence in the housing market is at rock bottom.
HSBC, the biggest bank operating in Britain, has taken a £3.2bn sub-prime hit and warns investors against assuming the worst of the crisis is over. HSBC chairman Stephen Green said it was "increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain", and that it comes as "the major economic risks facing the global economy now include inflation, particularly from rises in food and energy prices".
Then there's a less-than-starry-eyed assessment by Ambrose Evans-Pritchard of the Daily Telegraph. He is in no doubt that a slump is under way. Under the headline, “The global slump of 2008-09 has begun as poison spreads,” he says today that “the avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year”.
And finally, “Crisis over? No, it’s set to spread much wider”, is how the Evening Standard summed up things, quoting City financier Gerard Lyons, who said “that this is not the beginning of the end but rather the end of the beginning … the first stage of the crisis may be past its peak, but we are about to embark on the second stage, where problems spread to the wider economy and in turn add to the challenges facing the financial sector – a sector that is no condition to accept them.”
Hutton’s slavish faith in US capitalism is reminiscent of a famous scene in the gangster film, White Heat, where James Cagney shouts “Made it, Ma! Top of the world!” shortly before he is devoured by the flames of a massive explosion.
A World to Win secretary