After the crash, the comeback

FT.com

August 30, 2013 6:02 pm

By Gillian Tett

If you look at the media debate in America in the past few months, it is notable just how little wailing there has been

Five years ago, Charles Morris, a banker-turned-writer, produced a compelling and highly prescient book. It pointed out all the problems with subprime mortgages and credit derivatives several months before the crisis at Lehman Brothers. To my mind, that made it one of the most lucid and timely accounts of the mess in the western financial system (the title was The Trillion Dollar Meltdown, later revised to The Two Trillion Dollar Meltdown, as the disaster got worse).

Earlier this year, Morris published another book. And with the fifth anniversary of that Lehman disaster looming, it is worth taking note of this new tome – and what it reveals about the current mood in America. For Morris’s latest offering, Comeback, is distinctly optimistic. Yes, you read that right: the man who first revealed the rotten excesses in western finance is now forecasting “America’s new economic boom”, to cite the book’s subtitle.

This is not, let me stress, because Morris thinks that those troubled banks have been truly fixed; finance remains riddled with flaws. But what has happened, he suggests, is that the problems in the banks are being dwarfed by developments elsewhere. Most notably, America is heading for a potential industrial renaissance on the back of an energy boom, centred on shale gas, Morris says. If that can be combined with some modest reforms to healthcare and a little infrastructure spending, then America could also be poised to see a golden streak of growth that might even resolve the seemingly intractable problem of the national debt.

“The United States is on the threshold of a long-term economic boom, one that could rival the 1950s and 1960s era of industrial dominance,” Morris declares. “We can rebuild our middle classes, provide reasonable safety nets and healthcare, shore up our sagging infrastructure, and get our national debt under control,” he adds, arguing that the shale gas boom has already created 1.7 million new jobs, and this figure should double by 2020, with another 1 million or so jobs in manufacturing too. If this industrial renaissance manages to raise the growth rate by 1 per cent above current forecasts in the next decade, then debt to GDP will be nearer 60 per cent in 2020, not over 80 per cent as economists fear. The type of apocalyptic visions that are being bandied about in Washington – and which could inspire more political gridlock this autumn – may simply be wrong.

Now, to some observers, these suggestions will undoubtedly look hopelessly Pollyanna-ish if not naive; indeed, when this ebook quietly emerged earlier this summer, I must admit that I blinked. After all, with growth in the US currently stuck around the 2 per cent range, real wages essentially stagnant and unemployment remaining uncomfortably high, a boom in middle-class jobs still seems like a pipe dream.

And, to be fair to Morris, his sunny vision does contain caveats. America, he suggests, could mess up its recovery if energy companies are complacent about environmental threats or insist on exporting liquefied natural gas in a way that drives up energy prices (and thus makes American industry less competitive); so too if bureaucrats make the healthcare problems worse or fail to implement any infrastructure spending.

But leaving aside those inevitable caveats, what really fascinates me about his new tome is that I suspect it points to a symbolic turning point in economic mood. Five years after the Lehman crisis, most voters seem pretty bored of talking about banks (and, no, that does not mean that finance is “fixed”). They are less willing to keep dwelling on the wider issue of economic pain. Indeed, if you look at the media debate in America in the past few months, it is notable just how little wailing there has been. Five years ago, American pundits were frantically worrying about national decline; but with Europe looking a mess, Japan mired in challenges and the emerging economies now facing market turmoil, angst has dimmed. If you type the word “economic crisis” into a database of American media, you will find just 8,000 references in the past three months – half the level of preceding years. Similarly, in the same three-month period, there have been only 209 articles with the combination of words “recession”, “unemployment” and “American economy”, compared with 434 last summer and 682 two years ago.

Now that does not mean that the mood is buoyant. Nor that Morris is correct to forecast two decades of golden growth.

(For my part, I happen to agree with his excitement about a shale-inspired industrial renaissance, but am less convinced that this will deliver such a boom for the middle class.) But if nothing else, his book is a timely reminder that economic optimism and pessimism have a habit of moving in cycles. Or, to put it another way, as pundits prepare to wail about the horrors of Lehman Brothers next month, spare a thought for those drillers in North Dakota too; even – or especially – given that most of us barely knew what “shale gas” meant five short years ago.

gillian.tett@ft.com