Gordon Brown says he has “has nothing to apologise for” about the recession. You know, I think he has a point.
For one thing, the UK economy, so far, is not doing especially badly. Yes, the 1.5% fall in UK GDP in Q4 was worse than that suffered by France or Canada, but its less than that suffered by the US (1.6%), Italy (1.8%), Germany (2.1%), or Japan (3.3%). By G7 standards, then, we’re doing OK. Only a silly little Englander can believe this is an unusually British recession.
What’s more, it’s not obvious what exactly Brown is to blame for. The allegations don’t stack up. For example:
1) “Brown put the wrong regulatory regime in place in 1997.”
But if we’d had a different regime we’d probably be asking now why that one failed. Banking crises are common around the world and over time. They are an “equal opportunity menace (pdf)”. That they happen so often, despite so many different regulatory regimes (including freeish markets) suggests that regulatory failure is common.
Banks would have circumvented regulators, by offshore or off-balance sheet vehicles.
What’s more, there are two groups of people who have overseen banks over the last 10 years who could have but didn’t see the crisis coming - equity investors and non-executive directors. If they failed, why should we assume that regulators could have done better?
There’s something paradoxical about Brown’s critics, who are usually so (rightly) sceptical about the competence of the state believing that, in this instance, the state might have had sufficient competence.
2) “Brown’s lax fiscal policy in the good years means we can’t afford a sufficient stimulus now.”
But it’s not obvious that fiscal policy would work even if it were bigger and starting from a smaller deficit; Ricardian equivalence would not be much less powerful then than it is now.
What’s more, any stimulus now can only ameliorate the recession. To have prevented the recession, we’d have needed a stimulus a year ago. But no-one was calling for one then. A big problem with fiscal policy - getting the timing of the stimulus right - would apply, whatever position the public finances had been in.
3) “In pursuing inflation targeting without asset price targeting, Brown put in place a policy framework in which low interest rates allowed a house price bubble to emerge.”
But let’s say interest rates had been used to limit house price rises. Manufacturers would then have been screaming about their pain, and those people fretting now about the perils of deflation would have been doing so back in 2003-04. And if house prices are not net wealth - and have little impact on consumer spending - what would have been the offsetting gain? Macroeconomic policy should not be organized so as to protect a particular industry (banks) from its own stupidity.
4) “The macroeconomic stability Brown crowed about so much when Chancellor led, in Minskyan fashion, to banks becoming too risk-tolerant.”
But Brown didn’t create that stability - he just took credit for what was just luck (pdf). And, surely, no-one thinks any Chancellor should destabilize the economy merely to rein in future animal spirits.
It’s not obvious, then, what charge against Brown can stick. Yes, I think he should have nationalized the banks earlier - but that’s the hindsight bias talking. And yes, he’s guilty by association because he is a big fan of the top-down hierarchical structures that contributed to banks’ failures. But I don’t think Tories can consistently share my criticisms.
Of course, there’s tons to rightly blame Brown for - his wasteful spending, his government’s contempt for the rule of law, its failure to pursue equality more rigorously, its attack on freedom, its lies and cover-ups about the Iraq war and torture. But he’s not responsible for the crisis. It is perhaps the only thing he shouldn’t apologize for.
For one thing, the UK economy, so far, is not doing especially badly. Yes, the 1.5% fall in UK GDP in Q4 was worse than that suffered by France or Canada, but its less than that suffered by the US (1.6%), Italy (1.8%), Germany (2.1%), or Japan (3.3%). By G7 standards, then, we’re doing OK. Only a silly little Englander can believe this is an unusually British recession.
What’s more, it’s not obvious what exactly Brown is to blame for. The allegations don’t stack up. For example:
1) “Brown put the wrong regulatory regime in place in 1997.”
But if we’d had a different regime we’d probably be asking now why that one failed. Banking crises are common around the world and over time. They are an “equal opportunity menace (pdf)”. That they happen so often, despite so many different regulatory regimes (including freeish markets) suggests that regulatory failure is common.
Banks would have circumvented regulators, by offshore or off-balance sheet vehicles.
What’s more, there are two groups of people who have overseen banks over the last 10 years who could have but didn’t see the crisis coming - equity investors and non-executive directors. If they failed, why should we assume that regulators could have done better?
There’s something paradoxical about Brown’s critics, who are usually so (rightly) sceptical about the competence of the state believing that, in this instance, the state might have had sufficient competence.
2) “Brown’s lax fiscal policy in the good years means we can’t afford a sufficient stimulus now.”
But it’s not obvious that fiscal policy would work even if it were bigger and starting from a smaller deficit; Ricardian equivalence would not be much less powerful then than it is now.
What’s more, any stimulus now can only ameliorate the recession. To have prevented the recession, we’d have needed a stimulus a year ago. But no-one was calling for one then. A big problem with fiscal policy - getting the timing of the stimulus right - would apply, whatever position the public finances had been in.
3) “In pursuing inflation targeting without asset price targeting, Brown put in place a policy framework in which low interest rates allowed a house price bubble to emerge.”
But let’s say interest rates had been used to limit house price rises. Manufacturers would then have been screaming about their pain, and those people fretting now about the perils of deflation would have been doing so back in 2003-04. And if house prices are not net wealth - and have little impact on consumer spending - what would have been the offsetting gain? Macroeconomic policy should not be organized so as to protect a particular industry (banks) from its own stupidity.
4) “The macroeconomic stability Brown crowed about so much when Chancellor led, in Minskyan fashion, to banks becoming too risk-tolerant.”
But Brown didn’t create that stability - he just took credit for what was just luck (pdf). And, surely, no-one thinks any Chancellor should destabilize the economy merely to rein in future animal spirits.
It’s not obvious, then, what charge against Brown can stick. Yes, I think he should have nationalized the banks earlier - but that’s the hindsight bias talking. And yes, he’s guilty by association because he is a big fan of the top-down hierarchical structures that contributed to banks’ failures. But I don’t think Tories can consistently share my criticisms.
Of course, there’s tons to rightly blame Brown for - his wasteful spending, his government’s contempt for the rule of law, its failure to pursue equality more rigorously, its attack on freedom, its lies and cover-ups about the Iraq war and torture. But he’s not responsible for the crisis. It is perhaps the only thing he shouldn’t apologize for.
"so far": a shrewd qualification.
Posted by: dearieme | March 04, 2009 at 12:19 PM
Blimey, a link to the Taxpayer's Alliance as a guide to 'his wasteful spending'. The few times I've checked any of their stuff it seems to have been invented or at least seriously misleading. Take this example of a man who has no idea what he is talking about.
http://uktpa.blogspot.com/2005/07/how-little-of-100-you-get-to-keep.html
Posted by: Matthew | March 04, 2009 at 02:12 PM
When was the last time there was a run on a British bank prior to Northern Wreck?
"Banks would have circumvented regulators, by offshore or off-balance sheet vehicles"
Like the fact that London benefited by the influx off US firms fleeing post Enron Accounting rules?
I accept that the Asian wall of money would have manifested itself in other ways but the fact is simple. Brown organized a match between Arsenil and Spurs without a referee.
Thats our problem for which he is responsible.
Posted by: Concerned Citizen | March 04, 2009 at 02:32 PM
Chris: x-post this to Liberal Conspiracy, please.
Matt: Damn right. Are these idiots behind the massively overhyped documentary I heard trailered on Channel 4 last night about How The Government Squanders Our Money? [*]
CC: BCCI and Johnson Matthey, for a start.
[*] update: I checked, and they are:
http://www.channel4.com/programmes/dispatches/articles/how-they-squander-our-billions-related-links
Fantastic, can we make up a pretend pressure group that does nothing but tell stupid lies and then get an hour of prime-time TV from it?
Posted by: john b | March 04, 2009 at 03:08 PM
As I distinctly recall, the recurring complaint directed against Brown as Chancellor is that there wasn't nearly enough deregulation going on.
Cameron even appointed John Redwood (!) to campaign for deregulation in his capacity as shadow minister with responsibility for competitiveness. Of course, his big contribution to the debate was to claim interest rates had been kept too high for too long.
Quite how that helps to explain the house-price bubble or the consumer debt mountain of £1.4 trillion beats me but then I don't have a history degree from Oxford.
Posted by: Bob B | March 04, 2009 at 04:34 PM
The only point I'd really have a go at Brown for is the deficit spending during the boom. Which is quite a big point, really. And perhaps over-use of PFI deals, too, but that's a fairly minor issue in the grand scheme of things.
As for the Taxpayers Alliance, I've not read any of their stuff (are they the tax freedom day people?). But the article that Matt links too doesn't seem too misleading? Or am I being dense? I mean, government spending is (I think) something like 45% of GDP? So pointing out that some people's tax might be 65% (or more) on discretionary items is no more misleading than any number of selectively quoting blogs or newspaper articles. A little harsh to call them "stupid lies", John B - unless you've got an example of them actually lying, at least. Perhaps you could post a link? And an explanation? (Given that I've clearly missed the point with Matt's example)
Posted by: stuart | March 04, 2009 at 05:08 PM
Being blessed with deity-level foresight, in 2004 I campaigned for the government to raise interest rates and initiate a recession in order to restrain house prices. I wasn't very popular.
Posted by: Luis Enrique | March 04, 2009 at 05:21 PM
Chris,
I once sat on a jury. The defendant was clearly guilty, but not 'guilty as charged'. The police had got the charge wrong.
Most of Gordon's critics have got the charges wrong. You quote some of the more coherent ones.
But Gordon did do two things which made the crisis worse than it need have been. First, he did not stick to a reasonable view of the economic cycle, and therefore failed to prevent the Government from racking up a very sizeable deficit in what seemed pretty likely to prove an unusally prosperous period. That left the Government short of room for manoeuvre.
Second, it was evident by summer 2008 that recapitalistion of the banks (you refer to it as nationalisation)needed to be forced on them. For at least three months before the crisis blew in September, Gordon dithered (maybe because of the leadership challenge nonsense, but dither he did). That was and is very costly.
Those points apart, Gordon has had a less bad crisis than many.
Posted by: David Heigham | March 04, 2009 at 05:22 PM
Well tax rates are designed to raise income from various activities in the economy, and so to explain how they affect people one should choose spending that is representative. Otherwise why bother, you might as well say 'imagine you've got £100 left over and you spend it all on petrol', hey presto a tax rate of 80% or something.
The spending patterns shown are much the same as this silly example - for example this hypothetical person pays no rent or mortgage, makes no savings, buys no food or clothes. All of which would reduce the effect tax rate considerably, and are much more realistic.
I suppose you could argue this is meant to represent the final £100, but it can't be because council tax and road tax are in there, and even if they weren't the example doesn't say 'however you've already earned £200 on which you've only paid income taxes'.
So all in all, what was the point? Most of their stuff is like this if you look.
Posted by: Matthew | March 04, 2009 at 05:36 PM
Bob B - If I recall correctly, wasn't Redwood's 'deregulation' brief the various employment / HSE regulations that have been introduced in the last decade or so? I didn't think it had anything (directly) to do with the finance industry.
Posted by: stuart | March 04, 2009 at 05:53 PM
The deficit point is also nonsense: at the end of 2007 we had (still have, probably, although the dust has yet to settle) the lowest national debt out of the G7, even after including PFI, Network Rail, etc.
Posted by: john b | March 04, 2009 at 06:49 PM
It's depressing to read you peddling the myth that the crisis came out of a clear blue sky, that tighter regulation would have had little effect and that, essentially, no-one can be blamed and little could have been done to avert what promises to be the biggest meltdown since the 1930s. Admittedly, the Tories are well-blackened pots, having supported the 'light-touch' approach, but to argue that no warnings could have been given is the purest nonsense.
To quote the Baseline Scenario: "Brown falls back on what appears to be the current line for him and other US/global leaders, “it’s a global crisis” - with blame (of course!) placed on “massive capital flows” after the Asian financial crisis of 1997-98. In a masterful piece of political misdirection, Brown mixes platitudes (betters rules and standards), obvious ideas (governments ready to take regulatory actions against shadow banks), and things that he has implacably and effectively opposed in the past (a more effective global early warning system)."
Things should and could have been done to avert the scale of the bubble, and Brown/Blair have to take some responsibility for that - albeit in a junior capacity to that of Clinton/Bush.
Posted by: anotherplanet | March 04, 2009 at 07:11 PM
It's depressing to read you peddling the myth that the crisis came out of a clear blue sky, that tighter regulation would have had little effect and that, essentially, no-one can be blamed and little could have been done to avert what promises to be the biggest meltdown since the 1930s. Admittedly, the Tories are well-blackened pots, having supported the 'light-touch' approach, but to argue that no warnings could have been given is the purest nonsense.
To quote the Baseline Scenario: "Brown falls back on what appears to be the current line for him and other US/global leaders, “it’s a global crisis” - with blame (of course!) placed on “massive capital flows” after the Asian financial crisis of 1997-98. In a masterful piece of political misdirection, Brown mixes platitudes (betters rules and standards), obvious ideas (governments ready to take regulatory actions against shadow banks), and things that he has implacably and effectively opposed in the past (a more effective global early warning system)."
Things should and could have been done to avert the scale of the bubble, and Brown/Blair have to take some responsibility for that - albeit in a junior capacity to that of Clinton/Bush.
Posted by: anotherplanet | March 04, 2009 at 07:13 PM
The bubble and its consequences were, it seems to me, a chain reaction starting at number 11 in the late nineties - http://jockcoats.me/credit_church_chain_reaction_starting_number_11
Coupled with *any system* that allows the money men to play with something we then have to guarantee (even when we tell them so to play through public policy) and it's clear it's something government could have prevented (and not through this currently popular mantra of more or different regulation - just systemic change that would create theright incentives), but that it suits government not to change it - http://jockcoats.me/where_are_adventurous_young_bankers
Posted by: Jock | March 04, 2009 at 07:46 PM
Perhaps Brown shouldn't be blamed for the recession. It doesn't change however he was chanting no more boom and bust for years because the economy was floating along swimmingly. He isn't to blame for the fact we have been brought to the ridge above another huge drop (potentialy) but he didn't know he had no conrol over it. He's either a fool for not knowing the global economy would pull us into a sharp drop (bust) despite what he did or a liar for pretending the smooth journey for years was anything to do with his policies. I say you can't blame a fool, so he shouldn't apologise he should wake up and start building a parliament that doesn't have self-dilussion built in to it.
Posted by: wayne barron | March 04, 2009 at 09:46 PM
"There’s something paradoxical about Brown’s critics, who are usually so (rightly) sceptical about the competence of the state believing that, in this instance, the state might have had sufficient competence."
Agreed. However, the problem with him saying, "It wasnae me", is that he claimed credit for a benevolent economic climate that had nothing to do with him either.
Posted by: Shuggy | March 05, 2009 at 12:16 AM
Chris, surely if a man takes credit for something that is down to luck, then surely he has to either apologise for the mess we are now in, even though it too is down to luck, or you have take the blame and fall on your sword.
It is because Brown has refused either option that I will not be voting Labour (caveat: so long as Vince Cable is still with the Lib Dems come the next election). You just can't have it both ways.
Posted by: Riz Din | March 05, 2009 at 12:51 AM
"Chris, surely if a man takes credit for something that is down to luck, then surely he has to either apologise for the mess we are now in, even though it too is down to luck, or you have take the blame and fall on your sword."
I'd accept that for a friend. I don't see any reason why it should apply to one's choice of political leader...
Posted by: john b | March 05, 2009 at 10:05 AM
I'd be interested in your opinion as to why the UK economy appears to be holding up rather well compared to other G7 countries when UK GDP is more reliant on banking, financial services and housing.
Posted by: Nick | March 05, 2009 at 11:00 AM
Because Gordon Brown is a superman who bestrides the world like a colossus, of course.
Posted by: john b | March 05, 2009 at 12:48 PM
I blame Gorden Clown for everything, because I am a Free-Thinking Libertarian Individualist (and Paul Staines told me to).
Posted by: Neil | March 05, 2009 at 02:17 PM
There is no defending Brown
Posted by: Jackart | March 05, 2009 at 03:41 PM
http://brackenworld.blogspot.com/2009/03/there-is-no-defending-brown.html
Posted by: Jackart | March 05, 2009 at 03:42 PM
Maybe he should apologise for thinking that neo-liberalism was the answer. He won't because he still does.
Posted by: BenP | March 05, 2009 at 09:34 PM
I'm really curious about the stark differences between the political debate here about the global financial crisis and the rhetoric in America:
"Ben Bernanke, the chairman of the US Federal Reserve, said today that bold Government action was needed to steer America's economy out of a deepening slump - even if the result was a rise in federal debt.
"Speaking in front of the Senate Budget Committee in Washington, Mr Bernanke said that the country would be better of 'moving aggressively to solve our economic problems.'"
http://business.timesonline.co.uk/tol/business/economics/article5840128.ece
Contrast that call for bold action by government with this:
"Mr Osborne, the Shadow Chancellor, in a speech in Birmingham to the local Chamber of Commerce, laid the blame for the financial turmoil firmly at the door of Mr Brown's Government. He also called for a new model of growth that would usher in a UK economy powered by savings and returns on effort rather than one built on debt."
http://www.timesonline.co.uk/tol/news/politics/article5861087.ece
Posted by: Bob B | March 06, 2009 at 11:22 PM
The recession is not Boom Boom Brown's fault, but he is guilty of being economic with the truth:
http://tinyurl.com/d5qchp
Posted by: Robert Stafford | March 07, 2009 at 12:42 PM
As an American citizen I would like to apologize for the way Prime Minister Brown was treat during his recent visit to the US. There is no excuse for not being gracious and returning a gift is in very poor taste, even if the gift did not come from Prime Minister Brown. This is boorish behavior and this citizen wishes to express the gratitude to England for being our closest ally.
Posted by: Terry Handley | March 10, 2009 at 04:10 PM
This is just one idea, and perhaps displays no more than my limited imagination. If there are better ideas out there, that amount to more than "implement something called "market socialism" and then - alacazam! - full employment!" then I'd love to hear them. http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html
Posted by: cartier watches | December 27, 2009 at 05:20 PM