Spikes and stagnant growth: why we are where we are

We live in discombobulating times, economically speaking. We know we’re descending into the highest inflation for half a century and an almost certain recession. But we don’t know quite how painful it’s going to be and we don’t know how to apportion blame between bad decisions and ‘black swans’. Clearly the coming train crash has something to do with the Covid pandemic and quite a lot to do with the madness of Vladimir Putin. But what if economic prospects had been fundamentally damaged, especially for the most vulnerable, by policy responses to the previous crisis, namely the ultra-low interest rates and money printing deployed after the near collapse of the global banking system in 2008?

That is the question approached by the former investment manager Edward Chancellor in The Price of Time, through a scholarly perspective of the history of interest and credit since their known origins in ancient Mesopotamia. To compress a long story to its essence, the concept of interest for savers can be understood as a reward for abstinence – that is, for deferring consumption to a later date – while the interest received by lenders is reward for the anxiety of not knowing whether their money will ever be repaid. In theory, there must be a natural interest rate, satisfactory to both sides, at which supply meets demand. But when governments or central banks intervene in that market mechanism to impose interest rates that are unnaturally low – in the hope of alleviating short-term economic crises – the wider and longer effects are far from benign.

The economist Nouriel Roubini called policymakers’ response to the 2008 crash ‘socialism for the rich, the well-connected and Wall Street’. The already wealthy saw their assets – including property, shares and fine art – soar in value. Income inequality widened as executives and fund managers collected bigger bonuses for performance that looked good only because borrowing was cheap.