The Legacy of the Crash

by Terrence Casey

  Through decisions on the internment of foreign terror suspects in Belmarsh prison and on the admissibility of evidence obtained through torture, Lord Bingham formed a badly needed bulwark against the excesses of the ‘war on terror’ and methodically dissected and discredited successive affronts to the British system of due process. (Chakrabarti, 2010)

  Increasingly, judges in the UK are being criticized, as they have been for years in the US, for allegedly contributing to a democratic deficit by being too responsive to the demands of ‘unrepresentative’ pressure groups.11 No doubt these criticisms will eventually begin to abate, just as they have in the US, as a more diverse collection of organizations learn to use litigation to help advance their policy goals. Over time, this will further strengthen the already impressive state of judicial empowerment in the UK.

  Notes

  1. Since October 2009 the UK’s highest court has been known as the Supreme Court. This is one of several statutory changes intended to underscore the court’s independence – including a more transparent process of judicial appointment, exclusion of future Supreme Court appointees from the House of Lords, and relocation of the Court to its own building, separate from the Houses of Parliament. Since the decisions discussed here all predate the name change, this chapter uses the court’s older title, the Appellate Committee of the House of Lords, along with its more familiar informal names: the House of Lords, the House, and the Law Lords.

  2. Hamdi v. Rumsfeld 542 US 507 (2004); Rasul v. Bush 542 US 466 (2004); Hamdan v. Rumsfeld 548 US 557 (2008); Boumediene v. Bush 553 US 723 (2008).

  3. A and Ors. v. Secretary of State for the Home Department [2004] UKHL 56; A and Ors. v. Secretary of State for the Home Department [2005] UKHL 71; Secretary of State for the Home Department v. JJ. and Ors. [2007] UKHL 45; Secretary of State for the Home Department v. MB/Secretary of State for the Home Department v. AF [2007] UKHL 46; Secretary of State for the Home Department v. E and Anor. [2007] UKHL 47; Secretary of State for the Home Department v. AF and Anor. [2009] UKHL 28.

  4. It should be noted, however, that on questions related to national security, the Supreme Court has often demonstrated less independence than in other areas, giving considerable deference to the executive and legislative branches – particularly when those branches have acted in concert. A number of the Court’s least enduring decisions – for example, Ex Parte Quirin 317 US 1 (1942), Korematsu v. United States 323 US 214 (1944), and Dennis v. United States 341 US 494 (1951) – were made under the pressure of perceived threats to national security, reflecting the Supreme Court’s zeal to grant the President and Congress broad powers during times of crisis.

  5. Although this practice continues, the judges who take on such tasks today cannot expect the same reflexive deference from press and public that they once received (Morrison, 2004).

  6. Marbury v. Madison 5 US 137 (1803).

  7. For example, in United States v. Nixon 418 US 683 (1974), after Chief Justice Warren Burger rejected the President’s reading of ‘the Constitution as providing an absolute privilege of confidentiality for all Presidential communications’, he pointedly added: ‘Many decisions of this Court … have unequivocally reaffirmed the holding of Marbury v. Madison that “[i]t is emphatically the province and duty of the judicial department to say what the law is.”’

  8. The organizations that had the greatest presence and policy impact in court during this period are the National Association for the Advancement of Colored People (NAACP) and the American Civil Liberties Union (ACLU), both of which specialize in constitutional litigation. More recently, litigation based on environmental protection laws has been used by a variety of environmental groups.

  9. A number of these groups are now involved in litigation aimed at persuading federal courts, and ultimately the Supreme Court, to find the Obama administration’s health care reform law unconstitutional.

  10. These interventions were not all equally successful. JUSTICE’s intervention at Strasbourg, arguing that the use of ‘special advocates’ in control order proceedings involving secret evidence did not reduce its unfairness, probably helped influence the European Court of Human Rights to adopt the sweeping precedent that the House of Lords subsequently felt obliged to follow in AF. On the other hand, the argument that Liberty made in its E intervention – that all non-derogating control orders are incompatible with Article 6 – was rejected by the Law Lords.

  11. A recent British think tank report made the same criticism of the Strasbourg court: ‘it is admitted within the Council of Europe itself that the court is too easily subject to the influence of non-governmental organizations and lobbies, which sometimes sponsor cases for political reasons’ (Pinto-Duschinsky, 2011, p. 46).

  References

  Bevir, M., and R. Maiman (2009) ‘Judicial Reform and Human Rights’, in T. Casey (ed.), The Blair Legacy: Politics, Policy, Government, and Foreign Affairs (New York: Palgrave Macmillan).

  Chakrabarti, S. (2010) ‘My Legal Hero: Lord Bingham of Cornhill’, Guardian, 18 August.

  Dyer, C. (2007) ‘Lords Back Terror Law Orders on Suspects, but Give Them New Rights’, Guardian, 1 November.

  Epp, C.R. (1998) The Rights Revolution: Lawyers, Activists, and Supreme Courts in Comparative Perspective (Chicago: University of Chicago Press).

  Feldman, D. (1992) ‘Public Interest Litigation and Constitutional Theory in Comparative Perspective’, Modern Law Review, 52, 44–72.

  Ginsburg, T., and T. Moustafa (2008) Rule by Law: The Politics of Courts in Authoritarian Regimes (New York: Cambridge University Press).

  Harlow, C., and R. Rawlings (1992) Pressure Through Law (London: Routledge).

  Hirschl, R. (2004) Towards Justocracy: The Origins and Consequences of the New Constitutionalism (Cambridge, MA: Harvard University Press).

  Maiman, R.J. (2004) ‘“We’ve Had to Raise Our Game”: Liberty’s Litigation Strategy Under the Human Rights Act 1998’, in S. Halliday and P. Schmidt (eds), Human Rights Brought Home: Socio-Legal Perspectives on Human Rights in the National Context (Portland, OR, and Oxford: Hart Publishing).

  Morrison, D. (2004) ‘My Report on Lord Hutton’, Guardian, 3 February.

  Pinto-Duschinsky, M. (2011) Bringing Rights Back Home: Making Human Rights Compatible with Parliamentary Democracy in the UK (London: The Policy Exchange).

  Southworth, A. (2008) Lawyers of the Right: Professionalizing the Conservative Coalition (Chicago: University of Chicago Press).

  Stevens, R. (2002) The English Judges: Their Role in the Changing Constitution (Oxford: Hart Publishing).

  Wade, H.W.R. (1980) Constitutional Fundamentals (London: Stevens & Sons).

  Woods, P.J., and L. Hilbank (2009) ‘Comparative Sources of Judicial Empowerment: Ideas and Interests’, Political Research Quarterly, 62, pp. 745–52.

  14

  Conclusion: Anglo-American Politics in the Age of Austerity

  Terrence Casey

  Critical junctures in the political and economic development of nations are not always self-evident to those living through them. In late 2008, however, it was obvious that momentous events were upon us. The financial system came crashing down and the world teetered on the brink of depression. The collapse of the grand banking houses of Wall Street seemed to bury in their rubble the free market model that had governed the US and UK for the previous 30 years. This was a crisis of Anglo-Saxon capitalism (Gamble, 2009a, p. 7). The logical expectation was that the political economies of both states would branch off onto a different path, even if the new route was not obvious. And yet, as chronicled in this volume, so much of what has occurred since then belies this prediction. In terms of public policy, economic governance, and political trends, there has been far more consistency than change. Lack of regulation in the financial sector was blamed by many for causing the crisis, yet changes in financial regulation have been relatively unobtrusive. Politics has been shaken up with the rise of the Tea Party movement in the US and the advent of a Conservative-Liberal Democrat C
oalition government in the UK, yet this highlights that the trends have broken more toward the right, even if not definitively so. The flip side is that left-wing parties, with a brilliant opportunity to make a case for the progressive agenda, have remained on the back foot, unable to articulate an alternative approach. This is not to say that our perceptions of the economic world are unchanged. Perhaps only the most dedicated (classical) liberal still retains an undiluted faith in the ability of financial markets to self-correct. Even so, there has not been a wholesale popular rejection of the neoliberal economic framework. So where are we now? What follows is a tentative attempt to map the contours of British and American society, economy, and politics in the aftermath of the crash.

  Living in an austere age

  The first legacy of the crash is the diminished economic prospects of millions of citizens, producing social impacts that are both wide and deep. US gross domestic product (GDP) has returned to pre-crash levels, but Britain’s will not do so until at least 2013, and that is assuming that estimates of moderately revived growth are accurate.1 The same is true in terms of average income. British per capita GDP dropped by 5 percent from 2008 to 2009 and only regained about half of that by 2010. The US saw a 3 percent decline, but has returned to 2008 levels.2 Core inflation remains fairly low in the US; Britain is experiencing greater inflationary pressures. As of mid 2011 the recovery, such as it is, has been rather anemic in both economies.

  Millions lost their jobs during the recession and many have yet to find new work. Headline unemployment rates, however, underestimate the suffering. According to the US Bureau of Labor Statistics (BLS), the basic rate of unemployment was 9.4 percent in the first quarter of 2011. An alternative measure3 that includes marginally and underemployed workers puts the figure at 16.5 percent. The UK has fared slightly better, as unemployment peaked at just over 8 percent, below the 11 percent reached in the 1990–92 recession. Both the US and UK have also seen a fall in the overall employment rate. Just over 68 percent of Britons are in the labor force, down from 73 percent at the peak of the cycle (Campos et al., 2011, p. 7). The equivalent figures for the US dropped from 67 percent in 2001 to 64 percent in 2011.4 The US has also experienced a sharp increase in the percentage of long-term unemployed (defined as greater than 27 weeks by the BLS), a trend most evident among young workers. Structural unemployment has long been a concern for the British economy, although its affects have generally been regionally concentrated. Underlying labor markets faults have been exposed by the crash. Even with recovery, US labor markets are increasingly polarized, with job opportunities for higher and lower skilled occupations, but declining opportunities in the middle, particularly for blue collar production workers (Autor, 2010). Those who lost jobs in the recession may see a permanent decline in their income, even after they find work again. Mervyn King, Governor of the Bank of England, went so far as to suggest that living standards may never recover from the crisis (Independent (Online), 2 March 2011).

  The crisis began with the collapse of the US housing market, so US homeowners felt the pain even if still employed. House prices peaked at 200 percent of their 2000 value in late 2007 then collapsed, losing more than a quarter of that value through 2009. The market has stabilized since at similar levels to 2003.5 With plummeting house values and rising interest rates, many who had taken out high adjustable-rate subprime mortgages saw their monthly payment skyrocket, sending them into default. While painful for those involved,6 even at the height of the crisis only a very small percentage of houses went into foreclosure in the US. Even fewer did so in the UK and far fewer than during the housing bust of the early 1990s (Campos et al., p. 45).7 The surge of foreclosed homes nevertheless produced a glut of housing stock, keeping prices depressed. Even those still paying their mortgages saw the value of their major economic asset decline or flatline. Houses were no longer the ‘piggy bank’ from which people could draw via home equity loans to finance their expenses. Nor was this the only drain on wealth, as stock prices and retirement plans also shrank. From 2007 to 2009, the majority of American families (63 percent) experienced losses in wealth with a median percentage change of –18 percent (Bricker et al., 2011, p. 8). For the wider middle class, the crash represented a serious deterioration in their wealth. The macro-economic impact has been decreased net consumption and increased savings, at least in the US, creating a continued drag on growth.

  All of this comes on top of longer-term concerns about rising income inequality and declining social mobility. The oft-cited work of Thomas Piketty and Emmanuel Saez (2004) argues that real median wages have stagnated in the US since the late 1970s, while the share of income garnered by those at the upper end of the scale has increased precipitously. Greater inequality can be ameliorated by social mobility, but some evidence suggests that this has declined in the US in recent decades (Bradbury and Katz, 2009). Britain only ranks just ahead of America on this front (The Economist (Online), 7 April 2011). For progressive critics this is the inevitable result of a breakdown of the social bargain established in the post-war era. Whereas government policy used to redistribute the fruits of growth, now it all goes to those lucky few at the top (Reich, 2010; Hacker and Pierson, 2010). Whether inequality has truly risen over the last three decades is contested (see especially Reynolds, 2007) and turns on questions of data selection and interpretation that cannot be adjudicated here. It does not appear that the recession has worsened the situation in the UK, at least (ONS, 2010). Nor is there a direct correspondence between standards of living and income distribution; median US household GDP increased 18 percent from 1980 to 2008, after all (US Census Bureau, www.census.gov).

  Whatever the proper empirics on income, there is a sense of economic insecurity that has crept particularly into the American economic consciousness, developing from the ‘financialization’ of economic life. Individuals used to have some distance between themselves and global finance. With the liberalization of financial markets and the democratiza-tion of credit, financial activity penetrated into an ever widening range of economic and social activities. Particularly in the United States, the shift from defined benefit to defined contribution pension schemes, which now constitute around 70 percent of all American pensions (The Economist, 9 April 2011), serves to expand the pool of funds to institutional investors and connect personal financial security directly to market movements. Jacob Hacker describes this as ‘the great risk shift’, wherein individuals are increasingly burdened with the risks inherent in transforming from a system of social insurance to one of personal financial responsibility (Hacker, 2006). Britain, with its more generous welfare state and National Health Service, has also experienced this trend, but to a lesser extent.

  Has the crisis produced a general desire to change this, to reject the ‘risk shift’ and to reinvigorate state-sponsored social protections? The British and American electorates as a whole are certainly hesitant to countenance significant cuts in core welfare programs, be it Medicare, Social Security, or the National Health Service. At the same time there is no groundswell for returning to the social bargain of the past. For a start, many of the trends that created this situation long predate the neoliberal era and are so deeply embedded in both societies that they would be difficult to dislodge. Defined contribution pensions, for example, means that millions of average Americans, not just the denizens of Wall Street, have an interest in keeping financial markets flexible so as to maximize returns. Americans have not rejected the idea of financial intermediaries playing a significant role in their lives. What they are opposed to is poorly managed financial intermediation, particularly if it ends in a government bailout. Americans seem also to have reverted to their default suspicions of activist government, at least now that the worst of the crisis has passed. The British for their part have grown more economically conservative than they were a generation ago and seem to have accepted (in broad terms) that state spending must be reduced in order to revive growth. The acceptance of the utility and efficacy of the free m
arket among the general public was undoubtedly shaken by the financial crisis, yet the evidence to date suggests that it is still intact.

  Finally, there is the question of homeownership, the main conduit between most individuals and the financial system. The crisis began because too many people bought too many houses that they could not afford with rather slipshod mortgages. Much of the reason this situation developed is that politicians of all stripes see widespread homeownership as a desirable goal of public policy. It is part of what we are as nations, an indicator of achieving the American Dream, central to the conception of the United States and Britain as democratic capitalist countries. Plus, even though house price inflation precipitated the crisis, politicians have an incentive to see house prices rise again in order to kickstart the economy (Hay, 2009). Governments are thus faced with a paradox: they need stable housing markets, yet economic growth requires rising house prices, which can lead to destabilizing bubbles. This helps to explain, for example, the hesitance of the Obama administration to commit to a plan for winding down Fannie Mae and Freddie Mac. It remains to be seen how well London and Washington manage this paradox in the next decade.