ONE book Mervyn King, the departing governor of the Bank of England, could be forgiven for leaving out of his summer holdall is this well-argued tome in which HSBC’s head of economics argues that things are nowhere near as good as they look.
When The Money Runs Out: The End Of Western Affluence
Stephen D King
Its premise is that politicians, business leaders and consumers have convinced themselves that the recent rupture of the world economy is a cyclical blip on an upward trajectory. Instead, Stephen D King argues, stagnation could well become the norm.
“We take for granted our future prosperity, counting our economic chickens long before they’ve hatched. We expect our pensions to be paid in full, even though we save very little. We expect easy access to medical care, no matter how expensive it might prove to be.”
And so it goes on, with King accusing governments of sleepwalking into the belief that continuous economic expansion will help their budgets add up and banks’ assumptions that good loans won’t turn bad.
Many of the forces of globalisation on which we depend are, he says, in retreat. Some were one-off gains anyway, such as women entering the workforce and industrialisation. In their place, wages are squeezed by competition from emerging superpowers, and energy and food bills are set to rise.
Quantitative easing, says King, is like Vicodin, a painkiller popular in the US. “The policy drugs being dispensed by central bankers are more addictive painkillers than cures, more Vicodin than antibiotics. Persistently low interest rates are a sign of lasting economic failure, not a harbinger of economic success,” he writes.
Essentially, we’re struggling with the culture of entitlement and economics of extrapolation. It adds up to a future where countries guilty of not fixing their problems risk overseas creditors asset stripping to pay the bills they have incurred. King doesn’t prescribe a cure, other than that our expectations need lowering, but in assessing the problem he is admirably thorough. «