If this isn't a depression, what would one look like? The economic recovery following the crisis of 2007/08 has been the slowest for a century, slower even than from the Great Depression. Only the post-WWI recession of 1920-1924 saw a steeper decline in output, and even then there was a return to growth by month fifty of recession. This recession is approaching month sixty, with output still 3% below the 2008 baseline and heading back into triple-dip contraction.
Yet, there is still an unquestioned consensus that this is just a market correction, albeit a particularly severe one, rather than a global and structural economic re-alignment. Examine some of the evidence for the structural nature of the problem. The three longest US recessions since the Great Depression have coincided with spikes in oil prices: the 1974/5 oil crisis, the early 1980s recession, and the recession of 2009/10. Except, unlike the 1970s and 1980s recessions, this recovery has not resulted in a subsequent fall in oil prices. This can be explained partly by strong growth in emerging markets, partly by instability in the Middle-East and partly by the growing political strength of OPEC producers relative to Europe and America.
An orthodox economic approach to resource management is to rely on the magic of the price mechanism. But as the energy crisis shows, high oil prices have not reduced demand, nor has full substitution occurred as fracking only produces marginal long-term returns as efficiency savings are soon offset by declining accessibility. Production costs of regular oil have increased by 11% a year for the last decade, and shale oil has hardly made a dent in this, yet the price mechanism has not reduced demand for energy.
The same is true for other declining resources. We have just over a decade's reserves of titanium, essential to modern aircraft and high-quality manufacturing. A decade worth of zinc. Two decades worth of tin. A quarter century's worth of copper, the basis of the digital economy, and already commanding high prices for recycling. Modern computing and electronics are dependent on hafnium (14 years worth left), tantalum (30 years), antimony (30 years) and cadmium (50 years), all of which we assume, without any real evidence, will just be substituted for something else.
Without wishing to lay the 'woods for the trees' metaphor on too thick, the environmental-economic crisis that that many have scoffed at isn't some future threat, but might actually be something we are living through right now. World consumption of oil was barely shaken by the economic collapse, despite recessions being about the realignment of prices and production, as we desperately try to claw our way back to the oil-based economic status quo. Our use of key resources has become decoupled from the economic tools we have to manage them.
The orthodox economic response to problems of production is that we will innovate our way out of these problems. Maybe so, but the orthodox way of thinking gave us a bubble in Rare Earth Metals, and a recent collapse in the get-rich-quick REM Exchange, failing to solve the problem of how to manage these vital metals. These resource shortages will be coming to a head simultaneously over the course of one generation, and the estimates of reserves are usually quite conservative. Nobody knows what the system-wide effects of multiple shocks will be, and if the legacy of a global economic depression following a decade-long oil prices inflation is anything to go by we cannot just assume that solutions will be both timely and easy.
The same attitude that says that there is no alternative to austerity, that the best way to correct a stall is to hit the brakes, will never accept that there are other aspects to economic management in addition to more growth all the time. Like jobs, or prices, or production. The world view of much of the political class (all of the Tories and much of Labour) doesn't even contemplate, much less accept, alternatives to growth and so trying to engage people on these terms is like trying to having a conversation in two different languages.
E F Schumacher believed that the greatest weakness of economics was the misplaced assumption that the 'problem of production' had been solved. Schumacher wasn't just thinking about the ability to make things, he was talking about the tendency for things that drop out of sight to drop out of mind. He characterised orthodox economics as sloppy accounting, imagining natural resources and systems as 'off-balance sheet liabilities', when economic growth is clearly contingent upon the natural systems in which it is embedded.
Instead, a 'heterodox' economics was needed for full cost accounting of natural resource use, and the system-level effects that such use has. A heterodox approach such as Schumacher's may have recognised that a decade of increasing oil prices, higher still if not for government subsidy, would lead to a debt bubble in order to deflate prices and keep consumption high. Such a decoupling of prices from the true value of production was bound, before long, to cause a crash.
George Osborne now imagines himself in the role of noble hero, engaged in a fight to the death to purge the national soul of the toxin of debt. Yet, he has never properly asked where that debt has come from. To accuse the Chancellor of waging an ideological war is to slightly misdiagnose the ideology. Yes, the Government is seizing a limited and shrinking opportunity to use the cover of economic crisis to reduce the size of the state and permanently reduce taxes, but the ideology that is most pernicious is market absolutism. That the market is always right, and if people want more goods and more energy at ever cheaper prices then the market will inevitably supply these. The basic mathematics of production or the effects of system-level resource shocks just aren't considered. The fact that this larger ideology is accepted without question should be of far greater concern than how much longer George Osborne keeps his job.