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Will it work? On one point we can be certain: the latest instalment of quantitative easing will not fail because it is too small. A wise senior Conservative friend of mine had advice for the Chancellor and the Governor: "Don't underdo it". Nor did they. Mervyn King almost managed to sound enthusiastic about the latest disbursement, which is not his natural demeanour when it comes to handing out enormous sums of cash. This led me to a Kremlinologising conclusion: that the Bank now regards the break-up of the Euro as more likely than not, and wishes to signal to the world that if the crisis breaks, it will stand behind the UK banks.

So can these changes provide the momentum for recovery? That depends. Although the uncertainties over Europe are holding us back, the principal obstacle to renewed economic growth is the weakness of domestic consumption. In addressing that, there is one non-technical argument, which runs as follows. Much of economics depends on the presence or absence of animal spirits. These, in turn, depend on confidence. Over the past four or five years, Britain has not suffered fom a shortage of cash. The problem has been velocity of circulation. Although plenty of companies, banks and individuals have money, most of them have been keeping it in brass-bound chests under the bed. In particular, there is a reluctance to lend. Banks have been refusing to take the risk, except at interest rates which are so usurious that they would condemn the venture to failure. So if these changes do persuade the banks to start lending, confidence might return.


That leads us to a paradox. Since 2007, everyone has been telling the banks and their customers how irresponsible they were: the banks, for lending the money, the borrowers, for taking it. What is the government saying now? Please carry on lending and borrowing. We are in a recession which was partly caused by excessively loose credit. So what is the solution? To grow our way out of it, by a renewed expansion of credit.

Which also leads on, to the most basic problem of all. The human race has still not learned how to master credit, or its handmaiden, paper money. All modern societies depend on credit, yet it can easily leap out of control. So what is the desirable quantum of credit at any given moment? That, of course, depends on other factors. In the 1980s, there was rapid monetary growth in the United States. But most of that cash turned into output and jobs. The demand side and the supply side worked in harmony. The Americans could enjoy their benign outcome because of a deregulated labour market, as opposed to the furred arteries of the European model. In the UK, there would always been been the danger that extra money would manifest itself in wages, prices – and inflation. Admittedly, there have been improvements. Mrs Thatcher's supply-side reforms enabled Britain to escape fron the post-1990 recession much more rapidly than would have been the case in the old days. But there is more to be done.

It is a pity that the government could not start by implementing the Beecroft Report in full. The leftists – including most Liberal MPs – proclaim their sympathy for the young unemployed and are determined to defend their "rights". They fail to understand that rights without jobs are a mere mockery, and that the excessive emphasis on rights has deterred employers from taking on new workers, unless they are Eastern Europeans, who proclaim their willingness to work with every molecule of their being. An over-regulated labour market makes it impossible to run an economy at anything like capacity, without inevitable inflationary consequences.

There is a further alternative. If the problem is domestic demand and a monetary stimulus is proving ineffective, what about fiscal laxity: spending increases and tax cuts? In current circumstances, that would be folly, as George Osborne has always argued, wholly convincingly. But – suppose the euro were to implode? The British Government would be able to sell any amount of gilts while Sterling went into free rise, and there was no scope for lower interest rates. That might be the moment for a large fiscal stimulus. It is far from clear what else could be done.

Euro or not, this is the time for the emergence of a new economic genius, who would win the Nobel Prize with two books: "A General Theory of Credit" and "Supply Side or Demand Side; a false antithesis and a new synthesis". To return to the foothills and the opening question, "Will it work?", there is a clear answer. No-one knows.

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