Tweet
Who did you see racing from home over the holiday to keep Britain at work? Bankers? You must be joking. Bankers were feathering their balance sheets with £50bn in real money given them by Gordon Brown as a reward for their antics in 2008.
The people who were rescuing the economy were consumers spending what little money the government had left them. They packed supermarkets, malls, high streets and eBay websites, helping keep the retail sector, its suppliers and thus the economy going.
The government has now allocated to the banks the equivalent of £1,000 from every man, woman and child in Britain. This was supposedly to "maintain confidence" and thus continue the flow of lending. The flow has not occurred. It must be the most costly single failure of policy in peacetime. Yet the cry from politicians and the financial press is for more. Economic policy has not progressed beyond the Somme.
Banks are not lending for a simple reason. As demand plummets and unemployment soars - by a predicted one million next year - there are no good debts to be found. Bankers have been pilloried by ministers all autumn for recklessly incurring bad debts, mostly to first-time housebuyers at the bidding of those same ministers. They are disinclined to make that mistake again.
Attacking banks is satisfying and makes good copy, but they are behaving predictably. They are using the Treasury's largesse, which means our taxes, to bind up their bruised balance sheets and not incur bad debts at the start of a recession. They are saving. When there was a chance of propping up confidence, there was a case for helping banks.
Now the Treasury is throwing good money after bad. It is taxing and saving, the daftest policy in a recession.
If 2008 was the year of the bank, 2009 should be the year of the consumer. The recovery should be "kick-started" by boosting spending, not saving, and the people best qualified to spend are spenders. Over the holiday millions showed how. They went out and bought goods and services in the marketplace. They helped keep desperate shops, pubs, garages and hotels in business, and thus also their employees and suppliers.
Earlier this month I suggested simply giving the lavish sums being expended on banks back to consumers in the form of three-month spending coupons, say of £300 a month. The proposal is being actively considered to boost demand in Germany, Taiwan, Australia and elsewhere. It is better than VAT reductions, tax credits or ponderous public works contracts in instantaneously translating subsidy into demand. At the very least it puts money into the economy rather than taking it out, as do Alastair Darling's banking subsidies.
The proposal's critics fell back unerringly on Britain's patrician tradition of economic control. Giving people (their own) money was vulgar. It should be laundered through those who knew about such things, such as policymakers and banks. Most people would spend on fripperies rather than noble manufactures. They would buy imports, get drunk, indulge in leisure, Starbucks and hairdressing. Even if the vouchers were not cashable, people might sell them in the grey market to help to pay their mortgages (just what banks are doing with the same money).
None of these possible consequences is economically damaging and all would stimulate demand. All would leave the public rather than the Treasury to spend the way out of recession, on the assumption it will do it quicker and more wisely. Why tax people to build cars they do not want, rather than giving them money to buy cars they do?
There is nothing wrong in buying imports during a world recession. There is no shame in services and leisure, which are labour intensive and thus important at a time of rising unemployment. There is no guilt in shopping. Retailing, like tourism, underpins demand. The truth is that ministers are letting small businesses fail because these are run by people they do not know. What friend of the secretary of state for business, Lord Mandelson, ever owned a corner shop?
Economic policy has long been distorted by favour and prejudice. Reckless lending to poor housebuyers was good when it bought Blair and Brown votes. Now rising debt has made it bad. Helping big projects like the Olympics is good because it offers photo-opportunities, but helping leisure services is what John Prescott called "Mickey Mouse economics".
Labour economic policy enters 2009 in the mode adopted by Margaret Thatcher and Geoffrey Howe in the recession of 1981-2. It is turning the recessionary screw and suppressing demand just when the economy appears to need a boost. (Yet where are 1981's 365 economists writing to the Times to protest?) Thatcher and Howe at least had excuses - inflation was already at double figures and British industry was chronically in need of restructuring.
Brown and Darling are sucking the private sector dry just when it most needs moisture. They are protecting public sector pensions, raising the minimum wage and giving banks stupefying amounts of public money, knowing that this money is being withdrawn from circulation and will be saved, not spent.
If there is one sentiment that should have died in 2008 it is faith in the collective intelligence of Whitehall. The economic forecasters league table for 2008 was published last week and, of the 42 pundits listed, no public authority was in the top half. The Treasury came in at 37th and the IMF was bottom.
This is the mob that brought us City deregulation and the house-price bubble. Yet I doubt if a single one has been upbraided, let alone sacked. The entire Bank of England monetary policy committee is still in office - except for the only one who called the recession correctly, David Blanchflower, who has mysteriously been stood down.
This is not some City luncheon parlour game. As a result of the arrogance of these economic managers, a million people will lose their jobs next year and tens of thousands their houses. Yet all they think to do, egged on by politicians, is take more money from spenders and give it to savers, to their beloved City banks.
Banking is a profession that excels at making money for itself. For 10 years it mesmerised Blair and Brown, who showered it with tax loopholes, offshore profits, PFI contracts and vacuous government consultancies. Ministers and bankers enjoyed a revolving Whitehall door.
Frustrated ministers are still expecting the City to rescue the economy in 2009, continuing to trust it with the public's money to an extent that they will not trust the public. They seem unaware that bankers do not rescue economies. They rescue banks.
simon.jenkins@guardian.co.uk
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
Comment