Why Britain needs real stimulus, not PR spin

Mar 11, 2010, 01:20

Merryn Somerset Webb

Posted byMerryn Somerset Webb

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You can't say much good about Gordon Brown's management of the UK economy. But you can say this: he has done one hell of a good PR job on it. Check out Anatole Kaletsky in The Times today.

Gordon Brown, he says, "really did save the world economy in the autumn of 2008 when he became the first leader of a leading nation to offer unlimited government guarantees to every bank in the country." His were "bold financial policies." That's certainly what Mr Brown seems to think too.

But is he right? Not really. For starters he wasn't the first in with the guarantees – the US was (they had already bailed out AIG and Fannie Mae and Freddie Mac). Still, it doesn't really matter who was first. What really grates is the idea that bailouts and guarantees were bold financial policies. They were not. They were panic-driven necessities. Brown had absolutely no choice but to bail everyone out. What else was he going to do in the wake of the bank run he had already allowed on Northern Rock? Let a run begin on RBS? Hardly.

And the reason he provided the guarantee before most other nations? Because the UK's banks were the weakest in Europe and hence likely to go down the fastest. So none of this was a brilliant policy choice. Instead it was the desperate action of a government which had made the worst possible mess of regulating the banking and property sectors.

The next excellent bit of PR relates to the fiscal stimulus our economy has supposedly been given. But what is this stimulus? There was the cut in VAT (already gone) and the scrappage scheme (to end shortly). And that's about it. Compared to the wads of cash that have been on offer elsewhere (in Germany, in the US and in China for example) it's absolutely pathetic – as even Kaletsky notes.

But the government doesn't really want you to see that. Why? Because it wants us to think that high levels of fiscal stimulus are the reason why our national debt is so high when that simply isn't the case. The national debt is high because Labour has spent too much money, and the budget deficit is high because the ongoing recession has meant an utter collapse in tax revenues.

The truth is that the only real stimulus measures that the UK has seen are the monetary ones. First, we have low interest rates, which have staved off, but not yet prevented, disaster. Secondly, QE - which has worked for the bankers who really needed their bonuses, but not for many others.

My friend Nick Reid points me in the direction of the Guardian letters page, where a group of MPs has written in demanding a new and better fiscal stimulus package – one in which we invest (by which I really mean invest not just spend) in our inadequate infrastructure in an effort to not only boost the economy in the short term, but to improve the state of the nation for the long term. It's a nice idea, says Nick. Better broadband access and fast trains are surely a "good thing" and promote growth in a way that extra middle managers for the NHS simply don't. It is just a shame we haven't the money for them.

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  • 1. Michael Lewis

    (11 March 2010, 01:51PM)  Complain about this comment

    From blog of Ian Dale:

    http://iaindale.blogspot.com/2008/11/weathercock-commentary-of-anatole.html

    Kaletsky appears to be an idiot.

  • 2. Brian Fitzsimons

    (12 March 2010, 01:31PM)  Complain about this comment

    Not true that there is no real stimulus - £5Billion pounds worth of ‘Time to pay’ scheme keeps 160,000 businesses afloat , by Jonathan Moules
    http://www.ft.com/cms/s/0/bb3c2602-2877-11df-a0b1-00144feabdc0.html?nclick_check=1
    This is a good stimulus & it is allowing companies to trade & invest their way forward as oppose to the maddest of the early 80's slash & burn re-construction with its wasted generation of then young now middle age benefit seekers.

  • 3. Alex

    (12 March 2010, 02:06PM)  Complain about this comment

    Having taken a glance at that Article all I can think of is that someone is very much hoping for a title in the New Year Honours list. How any 'serious' economic commentator can begin an article with such a ridiculous sentiment is beyond me.

  • 4. Crash Gordon

    (12 March 2010, 08:35PM)  Complain about this comment

    Cant everyone see that this Prime Minister abolished Boom and Bust so any economic decline / drop in GDP/ increase in public debt and unemployment are all just illusions they are not real! its just not allowed!

    I am sure that like everyone else here we all cant wait for the opportunity to reward this administration for its unique care and custody of our nation and its well being for the last 12 years.

    Roll on May the 4th

  • 5. Andy

    (12 March 2010, 09:32PM)  Complain about this comment

    I think your point is well made Merryn. We have actually had very little fiscal stimulus in the UK mostly because the government persued an expansionary policy from 2002/03 onwards which has left us with less room than otherwise to expand our deficit.
    As to the monetary stimulus I have seen very thorough research and analysis of it on http://notayesmanseconomics.wordpress.com. He sems to think so far it has created asset bubbles and inflation rather than growth. If this is so (and he sounds authoritative and knowledgeable) perhaps we need new people and new thinking at the Monetary Policy Committee too...

  • 6. JAW

    (13 March 2010, 02:06AM)  Complain about this comment

    A brilliant truthful analysis, by Merryn, of the morose self-loving Gordon Brown and his almost-convincing display of economic infatuation with himself. If you say something ten times people feel compelled to believe it. Vince Cable and several others were baying at him for action re the banks and he was quite slow to act, essentially copying Ireland, and he only initiated action, devised by Mervyn King, because of the fear of a vast cash flow out of Britain into emerging guaranteed safe havens. Kaletsky is part of a winner-backing Murdock controlled Times that ditched Brown and Labour for the Tories but is now having second thoughts and so you see confused sycophantic articles first promoting one side then the other.

  • 7. Supermarine Blues

    (16 March 2010, 05:23PM)  Complain about this comment

    It amazes me that Brown's reckless spending and fraudulent abuse of his own "golden rule" have been ignored by the meeja in general.

    It's frightening that the Politburo still seems to have such fearsome control of the meeja; there can be no other explanation.

    It would be ironic if Cameron ends up instigating a "public works programme" to try to stimulate us out of the mire.

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