Libraries to Blame for Recession

Clearly it can now be revealed that the main cause of the great financial crash of 2008 was the fact that we had too many libraries. Thank goodness the government has bought this scourge under control and has now turned the tide both in the number of libraries and the numbers using them.

The huge unregulated financial institutions speculating in complex derivatives which many of them did not understand have had to be bailed out with huge quantities of taxpayer’s money due to the reckless lending of too many books by public libraries.

Clearly access to the unfettered lending of books has to be bought to a halt. This unsecured lending encouraging reading and education has done untold damage to our nation. Who knows what the scale of the problem could have been if we had a well read literate population. 

Fortunately we are now imposing some serious restrictions on library lending, by closing libraries altogether where possible and restricting the opening hours of the remainder. These timely actions should bring a halt to unfettered reading.

This seemed to be the sub-text to George Osborne’s Autumn Statement. Of course it is not just libraries that are to blame but the whole of our public services.  He and many of his supporters in the media seem to have been convinced that that the initial crisis was caused by irresponsible public borrowing.

Never let the truth get in the way of a good story. The conditions for crisis were created by a system of production that goes on strike whenever there are insufficient profits. This was hidden by excessive private sector borrowing and lending in particular by over-leveraged banks.

Eventually profits from credit-fuelled speculation in the stock market and in property, using financial instruments of mass destruction ceased to deliver. The collapse of this bubble led to massive falls in output and therefore in tax revenue.

Government deficits are a consequence not the cause of this mess. When the real estate bubble burst corporations and banks slashed spending in an attempt to pay down their debts. Perfectly rational but just like in the 1930s self-defeating, profits continue to fall. Falling profits have lead to a private sector investment strike.
The resulting investment collapse has lead to an economic depression that has worsened the public debt. At a time when the private sector is engaged in a collective effort to spend less despite in many cases sitting on huge piles of cash public policy should not be making things worse by big cuts in government spending (or big increases in tax rates on ordinary people).
After doing the right thing in rescuing the banks that caused the economic crisis conventional policy wisdom has quickly switched the focus onto government deficits. The result is that fiscal policy is reinforcing the dampening effects of private sector spending cuts. Monetary policy cannot solve this problem as interest rates are close to zero besides the problem is the profitability of the private sector not the lack of credit.
It is not even the right policy to propose a medium-term plan for reducing the government deficit as Labour has done. Based on cuts and tax rises as it is front-loaded and will further delay recovery and be self-defeating, indeed the IMF has studied 173 cases of budget cuts in individual countries and found that the consistent result is economic contraction.
There have been a handful of cases in which fiscal consolidation was followed by growth but this was due to currency depreciation in a strong world market. Current global economic conditions make this scenario highly improbable.
What is needed is more public investment not less. Only investment can increase productivity and growth and in this equation the government deficit is irrelevant.
In the Autumn Statement Osborne was crowing about the level of our economic growth (let us park for a moment how this largesse was shared across the population). When we break this down we can see that there where some extraordinary factors driving it. The corrupt bankers paying back to their customers £23 billion they had fraudulently received in “mis-sold” PPI insurance, the adoption of the new European national accountancy standards which include the growth in prostitution, illegal gambling and drug dealing and of course all the extra borrowing.
Bizarrely it is only the latter Osborne finds offensive or indeed immoral. Even with crime and corruption on the increase growth for next year is predicted at being lower than this.
Some of my old Labour friends have accused me of being too hard on Gordon Brown and too soft on Osborne. Brown was well meaning but misguided, Osborne is a sociopath. For me there is a clear distinction. Of course Labour is better than the Tories but I fear the danger with Ed Balls economic strategy is that Labour will do a “Francois Hollande” promise little and deliver less inadvertently opening the door to the far right.

So Farewell Gordon Brown!

As Gordon Brown disappears into the dustbin of history as the man who saved the Union it is appropriate to take a look at his significance. There is no doubt that he was both the architect and builder of New Labour’s economic policy which has been so difficult for Ed Miliband to shake off.

This is probably because he has persisted in dragging the dead weight of Ed Balls around with him. Balls not only represents the Brown legacy but offers little hope that Labour has learned anything from those years.

My own view is that history will be much kinder to Brown the Prime Minister than to Brown the Chancellor. This is probably the exact opposite of the popular perception. Brown the Prime Minister may have offered up a Freudian slip in the Commons when he said he had “saved the world” but to a large extent he had.  When the banks teetered on the edge of collapse in 2008 he did the right things in saving the banks and putting up taxes.

It is worth remembering that the economy was returning to growth before George Osborne put the brakes on with his first emergency budget and derailed the whole process destroying billions of pounds in lost output.

That is only a small part however of Brown’s record. He was a slavish supporter as Chancellor of Alan Greenspan who for 18 years was boss of the US Federal Reserve. The man who finally admitted when the Banks where collapsing that he had found a flaw in the theory.  A flaw that had been obvious to most of us for years.

Having pursued policies of deregulation and liberalisation Greenspan had now found "he made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms”.

In pursuing the same policies and making London a safe haven for rogue global capital Gordon Brown turned the City in to the world’s largest tax haven.

One of his daftest ideas and one the establishment continue to praise him for was making the Bank of England “independent”. One of the greatest triumphs of the post-war Labour Government was the nationalisation of the Bank of England. The idea that the policies pursued by the bank can somehow be de-politicised is fatuous. At this level economics is politics.

What’s more an independent bank for years kept UK interest rates higher than those in mainland Europe doing untold damage to Britain’s manufacturing sector. Brown managed to destroy one and half million manufacturing jobs in the process.

As well as liberating the City and the Financial Services sector to do its worst his next crime was the way he structured the welfare state to create a set of subsidies to the private sector. His complex web of in-work benefits kept workers trapped on low pay and subsidised bad employers. Simultaneously housing benefit grew as private sector landlords had a field day ratcheting up rents to milk the subsidy.

What’s more because ordinary people received next to no benefit from his largesse they did not thank him at the ballot box for this spending.

There are other examples the way that private sector provision of care for children and the elderly has fallen in quality and risen in cost. A week does not go by without some scandal in these private services. He was truly naive in thinking ownership did not matter and you could use regulated markets to achieve better services for the public.

Clearly Blair and Brown both had a malign influence in the Labour Party he was ruthless in rooting out any opposition to his policies and spent an inordinate amount of time jousting with Blair in placing his cronies in safe parliamentary constituencies.

It is clear now that the golden years of Brown’s Chancellorship can now be seen as being funded by fool’s gold. The entry of China into the world economy reducing the costs of manufactures and ushered in a period of low inflation and individual spending was funded by a tsunami of debt. Rather than abolishing “boom and bust” he facilitated it.