It is December 1843 in London. Queen Victoria has been on the throne for six years, Sir Robert Peel is prime minister, and Charles Dickens is about to publish a seasonal novella.
A Christmas Carol is the story of how the embittered miser Ebenezer Scrooge, becomes generous and cuddly following visits from the ghosts of Christmas past, present and future.
It is December 2015. Queen Elizabeth II has just become Britain’s longest reigning monarch. David Cameron, who views himself as a modern-day Peel, is prime minister. And a latter-day Dickens is about to publish a remake of the 19th-century classic. So here it is: an economics Christmas Carol.
The story begins with a journey a century into the past. In many ways life could not have been grimmer in December 1915. The Great European powers have been at war for 16 months. Britain and her allies have suffered heavy losses at Gallipoli; armies face each other across the barbed wire on the western front.
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But it is not all bad news. A second industrial revolution is in full swing, bringing with it a new wave of inventions that will transform the way people live their lives. Some of these – the telephone, the motor car, the aeroplane, electric light, cinema – are already available. Others, such as wireless, TV and antibiotics, remain in the future. The economic change spawns a cultural revolution. Modernism is all the rage, from Stravinsky and Picasso to Joyce and Le Corbusier.
Now turn the clock forward by 20 years. It is 1935, another unhappy period. It is the decade of the Great Depression and totalitarianism. The Nuremberg Race laws have been passed; Stalin’s purges are in full swing. But look closely enough and, once again, there is a silver lining to the cloud. The worst of the slump is over and unemployment is coming down. In the US, laws are being passed to prevent Wall Street from capsizing the economy. In Britain, Keynes is putting the finishing touches to the General Theory, a book that will revolutionise economics. Old industries such as coal are in decline. Newer industries such as car manufacturing are on the rise.
It’s now December 1975 and pessimism abounds. The long postwar boom has come to a sudden halt following a fivefold increase in oil prices. Keynesian economics seems incapable of finding a solution to stagflation: a combination of high inflation and rising unemployment. In Britain, the annual increase in the cost of living has reached a peacetime peak of 26%, and before another year is out the Labour government will be forced to obtain a loan from the International Monetary Fund that comes with painful strings attached. On the other hand, the internet revolution has begun, the first mobile telephone call has been made two years earlier, and any year that includes the first showing of Fawlty Towers can’t be all bad.
So, that’s Christmases past. The first thing to say about Christmas present is that it could have been worse. At one point in 2015, the euro was having an existential crisis, there appeared a real possibility that the world would slide into deflation, and that regional conflicts in the Ukraine and the Middle East might spread.
There have been four big themes to the global economy in 2015. The first is the uncertainty about what has been happening in China, where growth has clearly slowed but nobody is quite sure by how much. Officially, everything is going according to a plan that will allow growth to be more sustainable, but the official figures are, with good reason, taken with a large dollop of salt. Some analysts, those at the consultancy Fathom, for example, believe China is already suffering a hard economic landing.
The second big theme, linked to the first, has been collapsing commodity prices. If 1975 was a year when Opec showed its muscle, 2015 has been the year when the oil cartel demonstrated its impotence. At a time when Iranian oil has started to flow back into global energy markets, Saudi Arabia has decided to drive the oil price lower by pumping more crude in the vain belief this will kill off the US shale industry. This is a classic example of a country shooting itself in the foot; the Saudis need an oil price of $100 a barrel to balance the books. The price is currently around a third of that level.
The third theme has been Greece and the euro. From the moment Alexis Tsipras became prime minister at the head of his Syriza coalition in January, Athens was on a collision course with its single-currency partners. Tsipras had three mutually incompatible objectives: to soften the terms of Greece’s austerity programme; to return the country to growth; and to remain in the euro. At one point in the summer, it looked as if this trilemma might be resolved by Greece leaving (or being pushed out of) the single currency. Eventually, and in time-honoured fashion, Europe came to a compromise: Greece got a third bailout by agreeing to more draconian terms than those in force before Syriza came to power.
The half-finished nature of the global recovery has been the fourth big theme of 2015. In the developed world, Britain and the US appear to have made more progress than the eurozone and Japan, but life has not really returned to normal even in the Anglo-Saxon economies. To be sure, growth looks reasonably solid and unemployment is down to pre-crisis levels, but only because interest rates have remained at ultra-low levels. Inflation is low and workers have had to get used to nugatory wage increases. The year has ended with the Federal Reserve raising interest rates in the US for the first time in almost decade, a small increase in the cost of borrowing that could have big ramifications in some of the more vulnerable emerging market economies. Brazil, in particular, is in serious trouble.
The optimistic way of looking at 2015 is to see it as the pivot between the long hangover that followed the Great Recession and a new era of strong growth marked by stricter control of financial markets, a new wave of inventions, and the move towards a cleaner, greener economy following the deal on climate change reached in Paris earlier this month.
The pessimistic way of looking at 2015 is to see it as a brief interlude between one crisis and the next, marked by the steady descent into deflation, populism and protectionism. Seen from this perspective, the underlying problems of the global economy – inequality, debt and financial market excess – have not gone away.
The ghost of Christmas future knows what happens next. But as all Dickens fans know, his works were often published as serials to keep the reader guessing. Come back next week to find out what 2016 will bring.
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