Magazine article The Spectator

The Tory Quest for a Fiscal Holy Grail Is Doomed

Magazine article The Spectator

The Tory Quest for a Fiscal Holy Grail Is Doomed

Article excerpt

The good news is that Gordon Brown's golden rules are no more. These rules did not stop the then chancellor from launching a spending binge. They did not stop him from spilling red ink all over the nation's books at a time when the flow of cash into the Treasury was at record levels. They did not stop him from raising taxes, 60 times by some counts. They did not stop him from redistributing income from wealth-creators to wealth-consumers.

What the rules did do was provide the curtain behind which this latter-day Wizard of Oz could hide, give him the distraction on which magicians rely to prevent audiences from following their sleight-of-hand. Pay no attention to my tax-and-spend, I am adhering to the golden rules I invented.

And in the end, when his 2002 promise that 'at all times -- now and in the future -- we will never compromise our commitment to meet our fiscal rules and disciplines' became inconvenient, Brown sent his chosen successor into the newly cruel world to announce, 'To apply the fiscal rules in a rigid manner today would be perverse.' Indeed, Alistair Darling has no intention of applying them in a rigid or any other manner. Golden rule, R.I.P. rules that are jettisoned when they become inconvenient hardly qualify for that designation. It is as if we were all allowed to disregard the speed limit when we are in a hurry -- not very binding, such rules.

The fiscal rules that were Brown's guarantor against 'boom and bust' are not the only casualties of the current credit crisis and recession.

The independence of the Bank of England has been seriously compromised. Now, the Bank was never truly independent, since the Chancellor has the power to appoint and, if he is unhappy, to fail to reappoint the Governor and the members of the monetary policy committee. He also sets the inflation target, currently at 2 per cent, a single mandate that has prompted Mervyn King to keep interest rates higher than any sensible economist would countenance. Now that inflation is clicking along at an annual rate in excess of 5 per cent, the Chancellor has signalled the Bank that it need not worry just now about meeting its 2 per cent target -- better to lower interest rates to support the government's efforts to stimulate the economy. Gone is the notion that an independent bank's primary job is to tighten monetary policy when it feels the government is playing fast and loose with fiscal policy. Or at least to apply the judgment of its monetary policy gurus, rather than take 'advice' from Number 11 -- more precisely, Number 10.

The final casualty of Brown's attempt to minimise the downturn is our understanding of the economics of John Maynard Keynes.

Keynes did, as Brown argues, favour expanding government spending and borrowing during a downturn. But he was too much of a conservative to support such an expansion during good times. The great economist might not have been much of a believer in the teachings of the Bible, but his policy prescription was closer to the one Joseph recommended to the Pharaoh than to the one Brown and his Chancellor are recommending to British voters.

This uncharacteristic lack of intellectual rigour on the part of the Prime Minister is one with his analysis of the cause of the crisis. It seems Britain is the victim of a disease that originated in America, and magically crossed the ocean to infect perfectly healthy British banks -- the very institutions that were writing mortgages valued at 125 per cent of the value of homes, issuing millions of credit cards and not checking financial statements of borrowers, all under the eyes of regulators attempting to implement the trifurcated regime created by then chancellor Gordon Brown. …

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