On November 3rd, the Bank of England announced that Britain is facing its “longest recession since records began”, with unemployment forecast to nearly double by 2025.
How did we get here?
In most developed economies, recessions happen once or twice a decade (although Australia went without one for 30 years). So in some sense, they’re unavoidable. Yet the scale of the one we’re facing – the longest since records began – suggests some fundamental errors have been made.
The first was lockdown. For more than a year, we spent untold sums of money on daft furlough schemes and boondoggles like ‘Test and Trace’. Meanwhile, we allowed supply chains to break down through trade restrictions and lack of maintenance. We were spending more while producing less – which set us on course for inflation.
The second was letting dozens of oil refineries shut down without building any new ones. Such refineries became unprofitable during the pandemic, and firms didn’t bother to upgrade or replace them due to costly environmental regulations and the uncertainty surrounding ‘Net Zero’.
The third were the reckless sanctions against Russia. Rather than using the threat of sanctions as a bargaining chip, we immediately went pedal to the metal and tried to crush Russia’s economy. This backfired: while we have inflicted some long-term damage, we hamstrung our own economies in the process.
All three of these blunders stem from hubris on the part of liberal technocratic policymakers, who believe there are straightforward ‘solutions’ to problems like pandemics, climate change and interstate conflict. In reality, we’re always faced with trade-offs and unintended consequences.
The British economy is now grappling with general inflation (caused by lockdowns) and rising energy costs (caused by lack of refining capacity and sanctions against Russia).
The severity of these problems is laid bare in the ONS’s Business Insights and Conditions Survey – a fortnightly survey of around 10,000 businesses. Respondents were asked, “Which of the following, if any, will be the main concern for your business in November 2022?” Results are shown below.
As you can see, by far the most frequently mentioned concerns were “inflation” and “energy prices”. Only around 7% of businesses mentioned “taxation” as their main concern, demonstrating how ill-conceived was Liz Truss’s economic programme. (She thought we could tax-cut our way out of an energy crisis.)
Policymakers need to get grips with the fact that not every problem has a liberal technocratic ‘solution’. Paying people not to work, shutting down refineries and sanctioning other countries may feel good. But that doesn’t mean it’s the right thing to do.