Recent news about the world economy has cheered many people after months of unremitting gloom. It is right that we should regain our confidence that the system can recover. Certainly, there will be no lasting recovery without such confidence.
But it is dangerous, as well as tempting, to forget how bad things looked only a short time ago. This premature amnesia is not only psychological, burying painful experiences; it also has an ideological dimension, as seen in the US debate over the efficacy of the stimulus package and the bail-out of Wall Street. We are being told simultaneously that these measures have not worked – and that they were not necessary anyway. We are supposed to forget the frightening precipice over which we peered only a few months ago; and we are also asked to believe that what has saved the situation is the spontaneous resilience of the free market. Thus the bogey is “big government”.
Like many alarmist narratives, this story feeds on real fears. It is not unreasonable to worry about the size of current budget deficits. The fact that these deficits are partly due to bailing out banks that took unwarranted risks will not strike sympathy among taxpayers. The truth is that the alternative scenario was even worse – a systemic collapse of credit. But this is the bit that is too easily forgotten, innocently or otherwise.