The financial crisis theory of everything

Last month there was a fascinating poll from More in Common asking people to pick the main reason Britain is “on the wrong track”. As you can see from the chart below the results were fairly polarised. Voters from centre and centre-left parties were most likely to choose Brexit; on the right Tony Blair’s election came top. I suspect if the decision to allow high levels of non-EU migration post-Brexit had been an option that would have been chosen by most Reform voters.

Obviously polls like this shouldn’t be taken too seriously. People answer quickly and will default to a decision they disliked (like Brexit). But it was, nevertheless, surprising to see such a low score for “the 2008 financial crash”. For many of us working in policy it is axiomatic that the financial crisis was the moment when everything got worse, not just here but around the world. The UK and major European economies, in particular, have never fully recovered. Productivity growth hasn’t come close to pre-crisis levels.

But it’s not just the lingering economic effects. All of the crises, screw-ups, and bad decisions that have happened since 2008, with the exception of covid, were at least partly caused by the financial crisis. Clearly for most people the crash is now a distant historical event which is remembered, if thought about at all, as a one-off moment of panic, with frazzled bankers yelling at computers, that was resolved with massive state intervention. In reality it changed everything from the geopolitical landscape to electoral politics.

In his epic history of the crisis the economist Adam Tooze concludes by comparing it to World War One. As in 1914, the crash marked a moment of total system failure, when an architecture designed to avoid a calamity helped create it, and after which numerous assumptions had to be discarded. As with the war it is easy to see, after the event, the complacency and failures that led to disaster. As Tooze says, many of the questions we’re left with feel similar:

“How do huge risks build up that are little understood and barely controllable? How do great tectonic shifts in the global order unload in sudden earthquakes?...How do anachronistic and out-of-date frames of reference make it impossible for us to understand what is happening around us?”

Just as World War One led inexorably to the rise of extremist parties, the resurrection of trade barriers and tariffs, and geopolitical tensions, so has the financial crisis. To fully understand Brexit, Trump, Farage, Russia’s invasion of Ukraine, even the large wave of immigration that has transformed European politics, we need to understand how the effects of the crash percolated out into politics, economics and international relations. In the rest of this post I’ll go through all of these second and third order effects and show why the financial crisis has defined so much of what’s happened since.