There is nothing magic about this Keynesian fad

22 October 2008

Last week, The Spectator said that ‘Keynesianism is not the answer’. Here, Tim Congdon says the government’s economic recovery strategy is a sham based on outmoded leftist thinking

Most fundamentally, as far as possible bank nationalisation is being avoided everywhere, except in the UK. The correct principles of public policy here are simple in conception, even if complex in application. First, the state — ideally through a strong and independent central bank, but if necessary through the finance ministry — should provide lender-of-last-resort loans to solvent banks if they have difficulty in financing their assets. These loans should be on a generous scale, but at an above-market rate. Secondly, the state should not nationalise solvent and profitable banks, but only insolvent banks which have no hope of recovery.

The British government’s breach of these principles over the last few weeks has been unique in the industrial world. Brown and Darling have said that despite a sharp rise in the budget deficit, they plan to boost spending on public sector capital projects to compensate for the shrinkage in the banking system. Commentators have characterised this as the return of Keynesianism, as if the invocation of Keynes’s name could cure any economic ailment by sympathetic magic. Brown and Darling, notorious left-wingers in their early political careers, may indeed have a taste for ‘isms’. Far from setting an example to the rest of the world, they have inaugurated a policy of economic and financial sado-masochism in one country.

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Lucan C Heraclitus

October 25th, 2008 9:56am Report this comment

Thanks for this very clear analyis. It containing information about the nature of the 'deal' that I hadn't previously realized.

JohnAnt

October 25th, 2008 3:39pm Report this comment

Spot on, Tim. Brown is simply using the bank crisis as a cover story for continued Labour client bribery.
And once the government gets back its 12% pa, can you see that going back into the pockets of the taxpayer? Nor me.

Geoffrey Transom

November 7th, 2008 7:09am Report this comment

Oh please. The vapid acceptance of the latest politically-orchestrated swindle is not unexpected - journalists on the whole having the financial literacy of a cheese and pickle sandwich, and being primarily in the entertainment industry.

This bailout will, in time, be viewed as on a par with Gordon 'SuperTrader' Brown's decision to sell the bulk of HM Govt's GOLD at a 20-year low.

Taxpayers will not see a cent; au contraire, they will pay through the nose for generations. And Brown - once he is rejected at the next polls - will probably end up working for a bank.

Read some Jefferson... Peter Jones has done so, and to do so is no waste of a chap's time.

Cheerio

GT
France
http://marketrant.blogspot.com

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