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Things will never be the same again. The turmoil in the banking sector will ensure that the housing slump turns into a full scale recession. There will be massive knock on effects, not just for housing associated business in areas like carpets and furniture, but also all those hundreds of thousands of businesses selling things that none of us really need.

Things will never be the same again. The turmoil in the banking sector will ensure that the housing slump turns into a full scale recession. There will be massive knock on effects, not just for housing associated business in areas like carpets and furniture, but also all those hundreds of thousands of businesses selling things that none of us really need.

For example: In their new sketch show Harry Enfield and Paul Whitehouse feature a shop in Notting Hill that sells overpriced tat to gullible women. A topical satire may soon feel like a piece of history. Almost every parade of shops in well off areas includes pretty little boutiques selling posh bric-a-brac. How many will survive in a world where every penny counts? And as existing business close who will be able to raise the money to start new ones? As for any hope that the public sector will pick up the flack; the public deficit was already huge and now we can add all the money being pumped in to save lame duck banks. I said to my fifteen year old son this morning that if he is lucky things will be starting to pick up again when he leaves University.

All this may be too pessimistic but it reflects the distilled views I have collected from people who know more than me. In terms of the decline of the economy from its peak what we are beginning to experience may be on a par with the depression of the thirties, although fortunately for us absolute levels of personal and social affluence will remain several times higher than those experienced by our great grandparents.

Accounts of the origins of the welfare state emphasise the determination of economists and policy makers to avoid a repeat of the depression – it was this that inspired Keynes and Beveridge. So almost two decades after the beginning of the depression – albeit with the interruption of the war – its impact was determining future policy. What is now happening will cast a shadow over decision makers who are, as I write, on their way to primary school.

Over the coming years we can expect radically new thinking (which always involves rediscovering old thinking). To be sure we will have new economic theories and policy frameworks. But the recession will also reframe thinking about social norms and values and about the relationship between human capacity and complexity (this crisis shows what can happen when we create systems so complex no one knows how to repair them when they go wrong). I popular saying in the eighties was that ‘the right have won the economic argument, the left the social argument and the centre the electoral argument’. As financial capitalism collapses the Tories talk of a broken society and a third of Austrians vote for neo fascists little of this world remains. We can expect ideology to return to politics but the new dividing lines are unpredictable, and possibly dangerous.

Only time will tell what this will all mean but I hope that we here at the RSA can be at the forefront of debating what kind of economy and society will and should emerge now the neo-liberal experiment has collapsed under the weight of its own contradictions.

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