The Great Reckoning: How the world will change in the depression of the Nineties 
by James Dale Davidson and William Rees-Mogg.
Sidgwick, 531 pp., £20, January 1992, 0 283 06116 2
Show More
Show More

This book warns that the world is on the threshold of a savage deflation caused by too much personal, corporate and government debt. Lord Rees-Mogg and his American acolyte, to whom is attributed all the leg work, have been bold enough to set themselves up as 20th-century prophets of doom with more than a modicum of good reason. But their pessimism arises as much from flagrant conservative prejudice as from historical, economic and political analysis.

Doubtless they would regard such criticism as a slur upon good scholarship as they ramble through everything from the castration of Peter Abelard to 19th-century Wyoming’s gun laws, in their effort to persuade the persevering reader of the imminence of this apocalypse. In order to save ourselves, we must sell our over-mortgaged houses, rid ourselves of debt and head from the cities to resorts like Aspen which are set to mushroom all over the world. And while the authors do not expect to suffer the fate of Abelard, another voice that dared to challenge a prevailing orthodoxy, they look forward to similar ridicule at their challenge to the accepted wisdom that the next decade promises to be very like the last, that the world will have its ups and downs but will still be here and still growing.

Analysis is a different thing from the aggregated reflections of a pair of intellectual magpies, and while Rees-Mogg and Davidson have a case, they are far too hyperbolic. Their pessimism rests on a paradox: that the market system they revere is about to break down, but that governments neither can nor should act to save it. If they were more prepared to accept that the events of the last ten years, culminating in the present recession, are not a special case but exactly what can be expected from free markets, then they might be less apocalyptic. For the lesson is surely that governments can and will step in; and that markets give of their best when they are regulated, as every case of successful capitalist development bears witness. Nor is the world outside the Anglo-Saxon community and Japan in anything like the parlous position that is represented here.

While it is undoubtedly true that these economies have incurred an ominously deflationary burden of debt, the capitalist economies of Continental Europe have largely escaped – and the book remarks on neither the fact nor the explanation. To do so would be to acknowledge that regulated markets are much safer than the free-market variant, thus eliminating at a stroke one of the foundations upon which the book is based. Europe’s governments protected their economics from the financial free-for-all that accompanied the Anglo-Saxon willingness to operate financial systems wholly as markets, but the ideological position which these authors have chosen to inhabit doesn’t permit them to see this. It is what happens when writers set out to prove their preconceptions rather than allow their ideas to be informed by reality, especially when the preconceptions are such a mish-mash as the ones in this book. The authors modestly disclaim any detailed knowledge of history, politics and economics, whilst going on to advance detailed and contradictory prognoses that betray neither modesty nor knowledge.

Adam Smith is cited as one of their influences. Yet The Wealth of Nations is imbued with the notion of free markets ‘gravitating’ to ‘natural’ prices which represent the best point of ‘balance’ – the very Newtonian notion that The Great Reckoning attacks with such gusto. Like all his free-market successors, Smith felt that markets operated like the natural world in automatically producing the best results; that in essence the market is harmonious, and if left alone will arrive at a natural equilibrium. The economists of this tradition believe that government should be minimal because it gets in the way of those processes. You may agree or disagree; but that is the free-market position.

Mr Davidson, however, has chanced upon chaos theory and the new discovery of the old truth that there are discontinuities in market behaviour: that straws can break the smoothly functioning free market camel’s back and that economies move from boom to bust. This, of course, was one of the building blocks in Keynes’s attack on the tradition: but while Mr Davidson may have skimmed off a selection of good quotes he has obviously read as little of Keynes as he has of Smith. Keynes, in his lexicon, is the apostle of big government and therefore bad – an advocate of ‘economic closure’, whatever that may mean. Yet a couple of pages later he enlists Keynes to prove that while market economies may quite suddenly break downwards into recession, there is no clear-cut moment when they recover – an example of ‘non-linearity’ which affords the possibility that the world is in a non-linear break with its recent past.

The book’s contention is that the world incurred such a burden of debt in the Eighties that it will inevitably deflate in the Nineties: and it was not market processes that caused this but government inadequacy and meddling. Adjustment will not be gradual; again, it will be non-linear, with a collapse into depression – and governments cannot help here either. In other words, two great (and indeed coherent) traditions of economic thought have been selectively combined to produce the most pessimistic possible outcome – but neither is allowed to offer its own prescription. Keynesian economics have been deployed; but Keynesian remedies dismissed – whilst markets have been denied any self-stabilising properties. The book is a bran tub of pessimism.

For most outsiders, this is of little import, and one set of doom merchants must be much like another. But this is not the case. For Rees-Mogg and Davidson have a great rival in peddling doom, one Dr Ravi Batra, who had the temerity to publish a volume seven years ago predicting a depression in 1990 – but for different reasons. Dr Batra has no great trust in markets, and explained back in 1985 how the growing inequality in the distribution of wealth, together with financial deregulation, would spark a speculative orgy that would end with a debt deflation – an uncanny insight into what did happen in both the US and the UK. Batra thought that tax cuts aided and abetted the process, and dared to suggest that a wealth tax might curb the speculation and head off the coming slump – which for Rees-Mogg and Davidson is proof positive that the man must be unsound. Tax the wealthy? Perish the thought. Remember that these writers like to pick ’n’ mix their economics, and any measure that might make the markets more stable is ruled out as Big Government even while they accept that markets are unstable.

The Great Reckoning in fact relies less on economics to arrive at its conclusions than on politics – or rather, megapolitics. As defined by its authors, this involves an exercise in uncovering the violent dynamics of political relations which civilisation, law and propriety conceal. And what we learn is what we expected to learn: that we are in for a massive breakdown. But if you take away the hyperbole, this is a pretty standard treatment of the decline of the two superpowers. We are thought to be living in a period of sauve qui peut.

There are some interesting insights, however, along the way. The two are not prepared to back the thesis that Japan will inherit the next century, making the point that just as Argentina declined as a surrogate member of the British Empire, so could Japan fall with the decline of the US. Its exports depend on the US economy; it faces larger military spending and social programmes. It may meet the challenge; equally it might not. Another casualty of the roll-back of the US is Israel, now faced with a resurgent Islam but with neither the benefit of a peace settlement, which had once been theirs for the taking, nor a strong US protector. Indeed Rees-Mogg and Davidson argue that Islam and the Arab community are about to make their entry on the world stage, fired by religious fundamentalism and enlarged by the former Soviet republics. If the Islamic countries at present lag behind us economically, renewed oil shortages will provide a remedy – and information technology will enable them to build a modern economy consistent with their religion.

The Great Reckoning’s musings on Islam are typical of much of the book. Now that the Soviet Union has gone, it is almost as if there is some need to invent menace, and although there is no doubt that Islam and the West are ideologically opposed or that fanatical terrorism is likely to increase, the threat is qualitatively different. The idea that Islam might compete globally with the West in the way the Communist bloc did, with Cairo or Baghdad assuming the mantle of Moscow and the KGB, is risible. And it is not clear how information technology is going to liberate the Arab economy from its long history of industrial incapacity, or that usury laws were, as Rees-Mogg and Davidson argue, the principal obstacle to growth in the 20th century which it will now be able to circumvent. Industrialisation is a complex phenomenon that has vexed great minds for centuries – and it is doubtful whether the chip will succeed where many other influences on the Arab world have failed. Information technology’s role in the book is clear. It is a deus ex machina, spinning out of nowhere to deepen the general pessimism.

William Rees-Mogg, in an elegant preface, slightly distances himself from some of the wilder gloom that follows, essaying the view that for Britain at least the decline, if it continues, will be a wealthy one. Britain, he concludes, will choose the US and free trade rather than European protectionism. But if the world were to collapse into blocs, would Britain side with the US – and would the US include us? It seems doubtful. Mr Davidson is not so ready to let his collaborator off the hook. At one stage he invokes a visit Lord Rees-Mogg made to New York in 1989, in which ordering tea at the Waldorf was so time-consuming that ‘he observed that the condition of famous New York hotels was a metaphor for the decline of empire.’ It reminded him of being in an English hotel when Britain faltered. From such remarks are 531-page books born these days.

Send Letters To:

The Editor
London Review of Books,
28 Little Russell Street
London, WC1A 2HN

Please include name, address, and a telephone number.

Read anywhere with the London Review of Books app, available now from the App Store for Apple devices, Google Play for Android devices and Amazon for your Kindle Fire.

Sign up to our newsletter

For highlights from the latest issue, our archive and the blog, as well as news, events and exclusive promotions.

Newsletter Preferences