As the riot vans wailed past the DLR’s living room window last night and the news predicted econogeddon, the DLR felt no shame in building a makeshift fort behind the sofa stocked with tinned food, bottled water and rudimentary shanks. This is it, thought we, this is the breakdown of society. The revolution has arrived, and it is most definitely being televised.
But when we awoke this morning, the sun was still shining, the cat was still mewing and although Dalston withstood some violence, with the Kingsland Shopping Centre taking a beating and some light looting, it was a far cry from the burnt-out-buildings / torched-police-cars look being sported by Tottenham, Wood Green and Walthamstow (among other places). The world did not end (though two festivals were cancelled), society did not collapse and, woe is us, we still had to go to work.
Nonetheless, the combination of sensationalist media stories of stock market mayhem (combined with the ubiquitous pictures of traders with pained expressions), and public disorder in northeast London got us thinking. Of course, these two events are not directly, causally related, but there is a silvery thread that binds them: the so-called Great Recession.
Let us cast our minds back to the heady days of 2007. Do you remember when bankers were trusted? Sure, they paid themselves huge bonuses that were immoral in their size, but at least they weren’t undermining the entire financial system through reckless lending encouraged by innovative collateralised debt products. Right? Hmmm? What? Oh.
Well, once AIG and Lehman collapsed, the entire banking system was shown to be entwined with bad debt that was difficult to quantify. The result? No one knew who would collapse next and who to trust. Credit markets froze up and liquidity disappeared. There was a run on Northern Rock and HBOS and RBS would have gone the same way but for government intervention. ATMs were hours away from running out of cash. This was real end-of-days stuff.
Yet, most people continued on blissfully unaware. The DLR noted to itself at the time that this was the Great Recession that never was. Given that this was the worst recession since the Second World War, there appeared to be surprisingly little effect on day-to-day life, particularly in gentrifying Dalston.
This was probably owing to the unprecendented fiscal and monetary stimuli from governments around the world, launched in a bid to recapitalise the financial system and support the economy. These were partially successful; most banks are a lot more stable than they were, liquidity has flooded through the system and asset prices have rebounded. But the actions have essentially just shifted the debt from the banks onto the governments. And that means the taxpayer is now holding the can and footing the bill, while sovereign debt no longer looks so healthy any more.
What’s more, such stimuli can only be temporary, as governments eventually run out of money. So, government spending is now being reined in, weakening economic growth (and therefore make sovereign debt even less appetising in risky countries as anemic growth fails to eat into the debt mountains). The taxpayer paid for the banks to survive once, but they are also paying again now to balance government balance sheets.
The effects of this fiscal/monetary yo-yo are disproportionately hurting the poor. The liquidity injected into the system globally has led to higher commodity prices (note the coming increase in electricity and gas prices, for instance), while the VAT increase in this country has further added to inflation. Inflation is, according to Keynes, simply another tax, by which “governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” It also disproportionately affects the poor, who spend a higher proportion of their salaries on the necessities (you know, things such as food, water and heating) than the rich. At the same time, the government cuts will not be a burden shared by all: housing benefit, public pensions and other forms of social security will be cut. The 50% tax rate will be abolished. Go figure.
The withdrawal of the monetary stimulus will also hurt the young. It is now prohibitively expensive for young people to go to university, owning one’s own housing is a dream most will never realise and jobs are incredibly sparse. About 20% of people under the age of 24 are unemployed and a record number are economically inactive.
So, the Great Recession caused by the banks has created a lot of justifiedly pissed off young people in deprived areas, who see little reason to respect the authority of a police service that struggles for accountability when shooting people. Perhaps no wonder, then, that there was violence after another police shooting in an area wanting for jobs and funding.
It’s difficult to quantify the reasons for any public unrest, but there is anecdotal evidence that privation and discontent with the economic situation are at the least partial drivers of the recent riots.
To prevent these riots, the solution is likely to be a growth-focused government policy and more progressive taxes that would at least give the impression that we’re all in this together.
The DLR isn’t hopeful that this will happen under the current coalition, so we guess it’s time for Plan B: eat the rich.