WES Presents: Vince Cable
Posted on the 16th January 2016 by Sumeeta, Communications Coordinator
The second WES Presents event of this academic year took place on 12th of January. This time in collaboration with the Department of Economics and Warwick Policy Lab, WES hosted a guest lecture by Sir John Vincent Cable, a British politician, a former Secretary of State for Business, Innovation, and Skills, as well as a former Member of Parliament for Twickenham. The event was opened by Professor Abhinay Muthoo, Head of the Department of Economics at the University of Warwick, who referred to Sir Cable as a highly respectful politician, who “has an honesty to speak what is right” and “unlike any other politician, has a solid pedigree”.
“The Storm” or “After The Storm” already
Sir Cable began by calling himself the “Politician in opposition in the beginning of the financial crisis”. In the wake of the booming housing prices, he anticipated the possibility of the crisis, ignoring the still prevailing positivity in British politics. As for the majority of political players in Britain the financial crisis in 2008 came unexpectedly, Cable’s book “The Storm” was born from a motivation “to teach myself about what was going on”. The sequel of the book, “After the Storm”, became a retrospect, evaluating the dramatic economic event 7 years later and estimating the point the economy has reached since then.
Cable reassured that “After the Storm” is not entirely an economic writing, for which the literature is abundant. It is rather an account integrating the world of economics and practical politics “that interact in a very powerful way”. The complexity analysed in the book is very relevant to today’s developments. According to the speaker, “the nature of the politics has changed” because we are witnessing the emergence of the politics of identity. Recent debates about the future of the United Kingdom in the European Union, Scottish independence, immigration, or religion are narrow components of the broader identity crisis. Cable linked these current phenomena to the waves of crisis that hit the living standards, upsurged the anxiety and fear about the future, and prompted an aggressive and insecure way of policymaking.
The four legacies of the crisis
As the speech developed, Sir Cable turned to the “four legacies” that he saw prevailing in the current economic environment. Cable emphasized the importance of acknowledging the existence of these legacies because the aspects, that were fatal for the 2008 crisis, have not been combated. Most importantly, he pointed at the accumulation of debt - an “absolutely central factor”. The aggregate debt has grown before the crisis, throughout it, and it failed to go down in the aftermath. The indebtedness of the major developed economies remained “roughly the same in the nominal terms” and continued to be “very substantial”. Thus, the “four legacies” suggested by Sir Cable were:
Building growth on expanding debt, increased worries about deflation. The mechanism adopted to stop it from taking hold was effectively a zero interest rate ground. The world economy, including England, remains at this bottom. Sir Cable called such policy “a strange way of capital allocation” which prevents the economies from reviving.
Gigantic banking system
The banking system in the UK was massive relative to the size of its economy, making it too bank-dependent. Having the mainstream banks, the balance sheets of which were comparable to those of large economies, was not healthy. Collapse of just one of them meant a fatal shock to the whole economy, the repercussions of which are critical even 7 years later. The problem remains at the core, as the banks have actually grown bigger after the crisis and the British economy is still “subject to a crash”.
In the immediate aftermath of the crisis, the government was spending largely on the deficit. The obsession with government debt and deficit was ever-increasing, as debt-to-GDP ratio was growing. In this way, government allowed finances to get of control. However, the question that remains highly debatable is should the priority be the debt reduction through austerity or should the advantage of cheap capital be taken to further invest in the future?
Housing price rise
The property prices have increased enormously relative to the incomes of average households. This trend reached a new peak in 2015. According to Sir Cable, it could be largely destabilising, remembering the similar escalation which was a key feature of the previous crisis. Cable pointed at a serious policy problem – an inability to maintain sufficient housing supply to meet the levels of expected purchasing. As a way to deal with this alarming set of developments, Cable offered “a crying need to rebalance the UK economy”. Exposure to the banking system, inflation in housing sector, underperforming export sectors – all of these must be addressed in the government to promote innovation.
We are very proud that the lecture attracted a lot of attention from the staff of the Department of Economics and the students. We hope to see you attending the Summit, as we host many more prominent speakers and insightful talks.
By Ieva Zvinakyte, Communications Team Member
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