Why the Economy Matters

Why the Economy Matters

‘It’s the Economy, Stupid!’ — Bill Clinton’s 1992 presidential campaign slogan that defeated the incumbent George H. W. Bush.

The tulip is a beautiful flower, and one knows spring is on the way when its buds start to appear from the ground, signalling the transition from the dark winter months. However, it is also a flower that once caused a global economic meltdown. In the 17th century, this brightly coloured flower was introduced to the Netherlands from the Ottoman Empire. It soon became highly desirable, and demand for tulips skyrocketed, leading to speculative buying and sharp price increases. The flower was sold on both formal and informal markets, with prices reaching extraordinary levels—some tulip bulbs were sold for more than the price of a house. However, common sense eventually prevailed, and by 1637, the market collapsed. Buyers began to question the rationality of these highly inflated prices, and demand plummeted. This, in turn, caused a complete market crash, leaving speculators unable to sell their bulbs for the prices agreed upon in previous contracts, resulting in significant financial losses for those who had invested heavily.

The ‘E’ in PRESC stands for economics, and while previous articles have examined the political drivers behind historical key events, it is time for a 1,000-word exploration of why money truly makes the world go around. The tulip story mentioned above is a cautionary tale for speculative bubbles in the market, such as the dot-com era of the late ’90s and early 2000s, or potentially the current cryptocurrency boom being witnessed today. More importantly, it serves as a starting point for examining how economics has shaped some of the biggest events in global history.

The turn of the 19th century marked the mass industrialisation of the UK and later Europe. It was during this time that capitalism as a creed developed, along with the emergence of what we now understand as the class system. While capitalism has achieved many wonders, it also necessitates gross inequality to thrive. The vast difference between rich and poor during this era inspired one of the most famous and influential books of all time. The Communist Manifesto by Karl Marx and Friedrich Engels advocates for the overthrow of capitalist systems, where the bourgeoisie (capitalist class) exploits the proletariat (working class). The manifesto calls for the abolition of private property, arguing that capitalism perpetuates inequality and class struggle. It envisions a society where wealth and resources are shared collectively, eliminating class divisions. Marx and Engels propose that workers unite globally to seize control of production, establish a classless, stateless society, and achieve equality and freedom for all. Its central message is: “Workers of the world, unite! You have nothing to lose but your chains.” This book has influenced hundreds of millions of people and was the catalyst for the Russian Revolution of 1917, which can arguably claim the title of the most impactful event of the modern era.

In complete contrast to the Russian Revolution, we turn to New York City, the home of modern-day capitalism. There is an apocryphal story about Joe Kennedy, the father of President John F. Kennedy, and the Wall Street Crash of 1929. The tale goes that Kennedy was having his shoes polished when the shoeshine boy began offering stock tips. Kennedy supposedly reasoned that if even shoeshine boys were speculating in the stock market, it signalled widespread mania (akin to the tulip craze) and an overheated market. Believing a crash was imminent, he allegedly decided to sell off all his stock holdings, becoming one of the few to profit from the 20th century’s darkest economic day.

The impact of this crash cannot be overstated. The collapse of the American economy had catastrophic consequences worldwide. It wiped out billions in wealth, collapsed banks, triggered mass unemployment, and led to the Great Depression, causing global economic devastation and widespread poverty. Most GCSE students know that Germany’s recovery after World War I was curtailed by this crisis, with a second bout of hyperinflation destabilizing the Weimar Government and contributing to Adolf Hitler’s rise to the chancellorship. Japan, too, used the global depression as a pretext to invade China, beginning the process of undermining the League of Nations and ultimately leading to World War II.

History repeated itself 79 years later. This time, however, the story began in the trailer parks of the USA. In short, the mortgage system had become so deregulated that people with barely a dime to their name were able to take on unsustainable mortgages, encouraged by the commission-based bonus systems of lenders and bank sales representatives. Overnight, some of the most renowned financial institutions, such as Lehman Brothers, Bear Stearns, and Northern Rock, collapsed. As in 1929, the 2008 economic crash caused a global financial crisis, leading to massive bank failures, plummeting stock markets, and severe economic downturns worldwide. Millions of people lost their jobs, homes, and savings.

Governments implemented bailouts and stimulus packages to stabilize economies, while austerity measures strained public services. The crisis exposed weaknesses in financial regulations and deepened public distrust in institutions, leading to long-term economic challenges and a rise in populist movements fuelled by inequality and disillusionment with the status quo. The 2008 crash further fuelled populism by exposing economic inequality and fostering deep mistrust in elites and institutions. Bank bailouts seemed to favour corporations over ordinary citizens, sparking widespread anger at perceived unfairness. Job losses, stagnant wages, and austerity measures left many feeling abandoned by their governments. This discontent gave rise to populist leaders (such as Donald Trump, Viktor Orban and Nigel Farage) who promised to challenge elites, restore national pride, and protect “ordinary people,” exploiting economic grievances to gain support across the global political spectrum.

(All of this has been explored in greater detail here: https://www.presctutoring.com/blog/the-rise-of-the-far-right/)

To conclude, let us return to the opening quote from Bill Clinton. His unexpected victory in 1992 came against a formidable opponent: a man who had won the Cold War and recently led a successful campaign against Saddam Hussein and the Iraqi army in the Gulf War. However, for George H. W. Bush, these foreign policy triumphs paled in comparison to the domestic economic situation.

Bush famously declared, "Read my lips: no new taxes" during his 1988 campaign, only to later go back on his word. This breach of trust alienated enough voters to cost him a second term in the White House. The lesson here for any aspiring politician is simple: never underestimate the importance of the dime and nickel!