Butterfly effect

Nick Cohen says the global economy is in a new kind of freefall. Photo / Supplied

According to British writer Nick Cohen, the last thing we should do in such troubled times is trust a banker.

As he writes in his latest book, Waiting for the Etonians, a collection of his columns from the Observer and the New Statesman, monetary speculators have been behind every economic collapse since the Wall Street crash of 1929.

"From a young age here, you're brought up to learn the history of the Great Depression," Cohen says.

"You learn that you never let financiers run riot, otherwise you get a depression, fascism and war. You've got to keep them honest, otherwise you get the Keynesian nightmare of debt, deflation and lowering of expectations. People think 'why should I buy this year when next year it'll be cheaper?'"

Investment is an indication of optimism, not just in individual fortunes but also in society as a whole. "That's why I don't like those people, mostly the English upper class, who say that a recession is good for us, it'll teach the masses a lesson," Cohen says.

"Historically, optimistic periods are your best periods. You're looking after your future. That's a good thing, whereas during a depression, it's 'I'm not going to do it now'."

What about entrepreneurs such as Dragons' Den kingpin Duncan Bannatyne, who suggests that there has never been a better opportunity for new ventures?

"Maybe, if you're able to finance it," Cohen says wryly. "There are people at the moment who are getting total bargains and we'll all look back and say 'wow, wish I could have done that'."

The Islington-based journalist is known for his outspoken opinions. In his third book, 2007's What's Left?, he berated the hypocritical attitudes of Western liberals. He returns to the theme in Waiting for the Etonians, blaming Britain's current downturn on the Tony Blair/Gordon Brown-led Labour administrations.

"It's been very odd," he says. "In many ways, they've been a traditional, left-wing government. They've redistributed wealth - you walk around any town in Britain and you'll see new schools and hospitals. The reason they can do that is because of globalisation. The goose that laid the golden egg for them is the city."

Cohen compares London's financial district to an offshore centre. "The regulation is so weak. It's not like the Cayman Islands - obviously they're deducting taxes, but there's no prosecution or fines for business.

"So you have this contradiction at the heart of the British Government and now the chickens have come home to roost with a vengeance."

Is deregulation a bad thing? "If I was a businessman or woman in New Zealand, I'd probably be in favour of it," Cohen says.

"But the one thing you don't deregulate is the banking system."

Cohen believes the sometimes-centrist policies of the present British Labour Government have little in common with the Rogernomics-inspired, radical free market initiatives of their 1980s New Zealand Labour counterparts.

"Labour here is not about privatisation. And in New Zealand, they didn't spend billions of dollars on new buildings. They were caught up in the great euphoria of capitalism. It's often the way in New Zealand - you do things first and go further. You were the first country to give women the vote."

Cohen has lived through the slumps of the late-70s and early-80s, the late-80s and early-90s, and the dotcom crash of 2002. But the scale of the present recession is unprecedented. "I've seen, but I've never seen anything like this," he says.

"Last time around, debt councillors only used to see people who had lost their jobs. Now they're seeing people who are living beyond their means. It's like the Butterfly Effect - a butterfly bats its wings in South America and causes a hurricane in Florida. Tiny things have created a chain reaction and the whole structure has fallen apart."

As in New Zealand, many British couples have borrowed four or five times their annual incomes and are struggling to pay their mortgages.

"I come from a wealthy area of Manchester, which is one of the richest areas in England, and some people their have borrowed eight times their yearly salaries."

So is there any glimmer of hope on the horizon? "Maybe it'll be okay," says Cohen glumly.

"And here's a reason to be optimistic: all the economists are saying that this will be the worst recession since 1929. But they didn't know this was going to happen so, given how wrong their predictions of this crash were, maybe it'll be over by Christmas."