When presented with options about what would make people more likely to vote for a political party, 45 per cent said a harsher approach to crime, with the same number backing a tougher immigration policy – no surprise to anybody aware of the electorate’s concerns. The real story is what comes next: “cutting bankers’ bonuses” is the third most popular proposal, earning a massive 44 per cent rating. Having the state reduce payouts by diktat and indiscriminately – to voters, a “banker” is a shorthand term of abuse for anybody who makes money from money, including fund managers and so on – is frighteningly popular.
Actions that might actually help a recovery (rather than shutting down a large chunk of the economy) are less so: cutting taxes is at 31 per cent and cutting spending – vital to avoid national bankruptcy –just 22 per cent. We are in deep trouble. The City is loathed; people simply blame greedy bankers for all of the world’s troubles. This is leading politicians to be even more populist – and to downplay the massive cuts that are looming, regardless of who wins the election.
The truth about the crisis is complex. Central bankers kept interest rates too low; consumers and buy-to-let investors were convinced they could become rich without working; a lack of an adequate pensions system pushed savings rates down and forced us to import capital from Asia; US regulators ordered more sub-prime lending and created explicit incentives for banks to invest in CDOs; the authorities encouraged banks to hold too little capital; accounting rules broke down when markets froze and made matters worse; authorities told the banks they would always be bailed out; Gordon Brown kept boasting of having eliminated boom and bust.
The City messed up, failing to gauge risk properly, forgetting about the basics of banking and in some cases writing credit insurance without holding sufficient funds in reserve. Some firms were run by amateurs. But this is a complex, nuanced picture of generalised failure far removed from the widely-accepted caricature. Recessions are always a disaster for capitalism, which is only ever tolerated when it seems to work. In times of crisis, people’s worst instincts come out in force.
We need much greater financial and economic literacy. It is the only way people will be able to look after their personal finances rationally and assess economic policies dispassionately. One man who get this is Michael Gove, the Tories’ shadow education secretary, an unusually gifted and principled politician. In a recent speech, he argued that at the heart of the recent crisis lay an intellectual argument about risk and statistical theory. He is raising the possibility of making the study of the normal distribution and standard deviation part of the A-level’s core curriculum and introducing it to GCSEs. “The financial models that blew up so spectacularly often [assumed] market movements would behave in accordance with certain statistical models - but they did not… there is something extraordinarily hopeful about imagining a future British generation who are all educated to understand what probability and randomness really mean, a generation capable of having a much, much more sophisticated debate about crucial public policy issues.” Take a look at his interview on page 16 – it is equally powerful stuff.