A few quotes from a highly pertinent article by Liam Halligan, who used to work for the Telegraph, but is now in the private sector as a working economist. It makes sense to me:
“I tell you, in all candour,” he (PM Jim Callaghan) went on, “that that option no longer exists. And in so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step…”
The above words are among the most important uttered in the history of modern British politics. For a left-wing prime minister to have admitted that too much state spending is dangerous, while being barracked by a rabble of bearded Trotskyists from among his own party ranks, marked a turning-point in Western economic policymaking.
For it was in 1976 that the UK government had been rescued by the International Monetary Fund. After years of industrial subsidies, soft-budget constraints and Keynesian hubris, Britain was insolvent – unable to service its debts. After months of denial, the markets forced Callaghan’s government, “cap in hand”, to seek an IMF bail-out.
On that day, all notions that the UK remained a world-class economy, an industrial powerhouse, were exposed as nonsense. It was this country’s “economic Suez”.
What brought Britain to that disgraceful nadir was a lot of self-serving ideas about the wisdom of near-limitless government largesse. The “Keynesian consensus” had been that the state could borrow and spend practically ad infinitum, that “pump-priming” the economy was “the right thing to do”.
Which the two Eds know very well, but seemingly don’t believe. Not unlike their master then, Gordon Brown.
I remember Jim Callaghan well – he was the first PM that I actually saw in the flesh. Whatever his faults, he was evidently thoughtful and sincere. A different era, when despite the uselessness of his government and their opposition (until Maggie), the routine self-serving slipperiness that we see today was less apparent. The article goes on:
“Economic growth” isn’t a choice that governments can make. It is, instead, a useful outcome that can be achieved in a variety of ways, none of which is guaranteed. There are, on the other hand, many ways to make sure that growth doesn’t happen, and that a country’s economic situation gets worse…..
The UK is refusing to grow for one main reason – because our banking system is broken. It remains broken because vast unaudited liabilities continue to lurk within banks’ off-balance sheet vehicles, ensuring that the inter-bank market remains paralysed by fear of counter-party risk. As such, the availability of finance remains rock-bottom. The annual rate of UK bank lending just dropped from -4.7pc to -6.2pc, a record low.Credit-worthy firms and households are being starved of the working capital that is the very essence of enterprise. That’s why we have no growth.
So, despite Gordon’s colossally expensive bailout, we still haven’t clarified where the bad, irrecoverable debts lie, and it’s killing us.
Timid politics won’t do here.