WHEN the MONEY RUNS OUT: The End of Western Affluence

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    The Western world has experienced extraordinary economic progress throughout the last six decades, a prosperous period so extended that continuous economic growth has come to seem normal. But such an era of continuously rising living standards is a historical anomaly, economist Stephen D. King warns, and the current stagnation of Western economies threatens to reach crisis proportions in the not-so-distant future.

    Praised for the “dose of realism” he provided in his book Losing Control, King follows up in this volume with a plain-spoken assessment of where the West stands today. It’s not just the end of an age of affluence, he shows. We have made promises to ourselves that are achievable only through ongoing economic expansion. The future benefits we expect—pensions, healthcare, and social security, for example—may be larger than tomorrow’s resources. And if we reach that point, which promises will be broken and who will lose out? The lessons of history offer compelling evidence that political and social upheaval are often born of economic stagnation.

    King addresses these lessons with a multifaceted plan that involves painful—but necessary—steps toward a stable and just economic future.

    Hardcover, 304 pages



    I count myself as one of the last of the so-called baby boomer generation. We were the lucky ones. Over the years, we enjoyed extraordinary increases in living standards. Born in 1963, I am sadly a bit too young to have experienced at first hand the Beatles, Jimi Hendrix and the Summer of Love but, economically, my birth couldn’t have been better timed. In the first ten years of my life, per capita incomes in the United Kingdom—adjusted for inflationary distortions—rose around 37%. By the time I reached my twenties, per capita incomes had...


    One of my earliest childhood memories was waking up at some ridiculously early hour of the morning to watch the late Neil Armstrong step out of the Eagle—Apollo 11’s lunar module—and utter his now famous ‘one small step’ mini-speech. In the years that followed—alongside millions of other young boys—I became obsessed with space travel. I read articles and books which predicted – with considerable confidence, I might add—that lunar colonies would soon be established and that humans would be heading to Mars before the end of the twentieth century. I...


    While stagnation seems to present a whole host of problems, would it really be so bad? Western nations are, after all, a lot better off than they used to be and a lot richer than industrial powers in Asia, Latin America and elsewhere. Maybe, after the debt-fuelled gains pre-financial crisis, we should simply get used to living within our means. Perhaps, as the Skidelsky family would argue, we already have enough.¹ Perhaps we should accept, with equanimity, our declining influence in world economic and political affairs and, as I put it in Losing Control, learn to grow old gracefully.


    We need our economies to continue expanding at the rates of old because, otherwise, we cannot easily meet the promises we’ve made to ourselves. We are simply not primed for a world of ongoing stagnation. We prefer to stick to our illusions. If economies are incapable of healing on their own, we put our faith in the policy-maker’s magic wand.

    The debate on the ability or otherwise of economies to ‘self-adjust’ is long and tortuous. Before the Weimar Republic’s hyperinflation in the early 1920s and the Great Depression of the 1930s, there had been few recognized instances of major macroeconomic...


    We hope our monetary and fiscal drugs will cure us but they may only be making our problems easier to live with, at least in the short term. Their persistent use, however, may be associated with unwanted side-effects.

    For the most part, monetary and fiscal policies have, rightly, been regarded as the equivalent of drugs designed to fix the underlying problem. Interest rate cuts are normally temporary—what comes down eventually goes back up again. Big budget deficits designed to kick-start an economy automatically recede as the subsequent economic recovery tops up tax revenues and reduces social expenditures. Just...


    Whether through interest rate cuts or quantitative easing, monetary decisions create both winners and losers. In the normal course of events, these decisions even out over time. Savers win during periods of high interest rates, while borrowers gain during periods of low interest rates. Even if quantitative easing makes it easier for governments to borrow in the near term, success should ultimately allow private sector activity to recover, thereby raising tax revenues, reducing public spending on unemployment benefit and, hence, paving the way for a cyclical fiscal improvement. In this sense, monetary policy might be regarded as ‘neutral’ through the...


    If macroeconomic policies—of either the conventional or unconventional kind—cannot deliver a return to ‘business as usual’, what’s gone wrong? Is it simply that we expect too much? Or is it that the problems facing Western economies are not easily resolved simply through an interest rate tweak, a money-printing measure, a tax cut or a big increase in public spending?

    Something more fundamental is amiss. Macroeconomic policies are more likely to succeed if we believe the underlying economic foundations are still intact. Yet those foundations are in danger of collapsing. Central banks are now busily engaged in...


    To understand the challenges stemming from a breakdown of trust—in particular, when the breakdown is linked to economic disappointment—it’s worth going back to the thoughts of Alexis de Tocqueville (1805–1859), author of Democracy in America and The Old Regime and the Revolution. In the latter, he argued that, well before the 1789 French Revolution:

    public prosperity began to develop with unexampled strides. This is shown by all sorts of evidence. Population increased rapidly; wealth more rapidly still. The American war [of independence] did not check the movement: it completed the embarrassment of the state, but...


    The schisms seen in Western societies today are hardly new. Karl Marx (1818–1883) wrote about these kinds of strains 150 years ago. Indeed, those with Marxist sympathies would doubtless argue that what we’ve witnessed since the financial crisis is an inevitable process of worker immiseration fundamental to the capitalist model. As Marx noted in Das Kapital:

    Within the capitalist system all methods for raising the social productivity of labour are put into effect at the cost of the individual worker . . . all means for the development of production undergo a dialectical inversion so that they become means...


    At the end of the twentieth century, it seemed as though markets had emerged triumphant. Whether thanks to Adam Smith with his invisible hand or to Friedrich Hayek with his hatred of central planning,¹ proponents of free markets had won the argument. They knew that a happy and prosperous society depended on the decisions of millions of individuals whose actions were ‘coordinated’ through the miracle that is the price mechanism. Rapid global growth was a direct result of the spread of market forces around the world. Those who resisted this process would ultimately lose out. Deregulation and privatization spread like...


    How can expectations best be managed when economic life begins to disappoint? What sort of narrative should politicians, business leaders, bankers, trade unions, public servants, newspaper editors, religious leaders and all the rest adopt in the light of economic setback? Should they claim that ‘we are all in this together’, as George Osborne, the British Chancellor of the Exchequer, once famously argued, even though his own circumstances were hardly humble? Should they choose, instead, to blame others – and to suggest that those others should pick up the bill—for persistent economic disappointment?




    “Well-written, thoughtful and highly convincing. . . . [King’s] clear-eyed assessment of the problems ahead makes the book essential reading.”

    The Economist

    “For many, the financial crisis is a temporary interruption in the rise of western prosperity that is due to easily remedied policy mistakes. The Keynesians believe this, as do anti-Keynesians on the free-market right. King argues, instead, that the future is not what it used to be. We have made promises to ourselves we cannot afford to keep. The argument is important, even if, like me, you are not persuaded.”

    —Martin Wolf, Financial Times.

    “Hard-hitting, history-rich book”

    —David Wilson, South China Morning Post

    “A ‘powerful’ and ‘convincing’ book. Overall, as Charles Moore notes in The Daily Telegraph, ‘it’s alarmingly difficult to disagree’ with this book.”

    —Matthew Partridge, Money Week.

    “The book is jammed full of history [...] and is highly readable - being rich in the economic history that he argues was lacking in pre-crisis economic analysis. It is accompanied by some wonderful anecdotes and provides a good mix of economics and politics in addition to its historical detail.”

    —George Buckley, Financial World

    “Stephen King, chief economist at HSBC, has just published an interesting and well-written book When the Money Runs Out.”

    —Paul Ormerod, City AM

    “In this book, HSBC’s chief economist describes a real-life economic horror story, picking over the bones of the global financial crisis with the professional detachment of a forensic scientist examining the scene of a crime. The conclusions are clear and compelling. By the end, we know whodunit, how it was done and why, without resort to economic jargon – there are few acronyms, no equations and no charts. Instead we are offered policy prescriptions that ring true – uncomfortably so . . . The book should appeal to a wider audience than economists. The author is a newspaper columnist as well as a professional economist, and it shows in the crisp and easy style of his prose. I recommend it heartily.”

    —Erik Britton, Management Today

    “The author has tightly reasoned arguments. . . and suggestions for the steps that should be taken to ensure economic stability for future generations.”

    —Library Journal

    “[King] is dabbling in the financial equivalent of the horror genre. Perhaps even scarier, his is the stuff of nonfiction.”

    —Michael J. Casey, The Wall Street Journal

    Stephen D. King is Group Chief Economist and Global Head of Economics and Asset Allocation research at HSBC, a New York-based corporate bank regularly present at Bilderberg meetings. He lives in London.


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