Gordon Brown used to have a reputation for good political and economic management. It was, of course, guff. The 'credit crunch' supposedly sweeping all before it like a monetary tsunami indicates that a different story might be more accurate. The actualite of the oncoming of this liquidity trap might not have been easy to predict but the coming of the squeeze was entirely predictable - and has echoes in the liquidity trap Japan faced in the 1990s when helicopter money didn't help. Krugman's contemporary examination of the Japan trap reads as if it could have been written this year - and his conclusions should scare the heck out of anyone looking for a rapid end to this crisis.
Krugman wrote that a decade ago, but you can see the ghost of that trap in Roubini's warning of the extent of the current crash. Add to that Krugman's analysis of why helicopter funding failed the Japanese banks and the prognosis is pretty poor. Some European stock markets are already in the grip of the bear, and we could still see a profits recession to force markets even lower.
The blame lies squarely at the feet of those who failed to regulate financial services properly, as Stiglitz pointed out recently, including one Gordon Brown. In the words of Ken Clarke, former Conservative Chancellor:
"He ignored the warnings that personal debt was getting way out of hand, and as for the Government's finances, huge deficits have been run up. This means there is less money available to spend now that the economy is in trouble. From about 2002 onwards, Brown has been an old-fashioned tax-and-spend Chancellor."
We should not imagine that the US 'sub-prime' mortgage lunacy is the culprit here, not even the fantastically-named ninja mortgages, it's only a symptom of the malaise rather than a cause. The cause has been a refusal on the part of governments to accept that economies undergo corrections. As a result of attempting to avoid 'boom and bust' - better referred to as the economic cycle - governments adjusted credit regulations to lever more debt into the economy to continue an artificial driver of the economy - the Consumer Credit Act 2006 is a prime example. Not only that, but governments have been similarly living on IOUs.
National Debt is not normally a problem because inflation takes care of the value of the indebtedness, but an absence of value-added production renders that usual calculation worthless. Stiglitz explains the deficiency from a US point of view, but you can apply the same calculation anywhere. You'll notice, too, that governments took no steps to improve the lot of homeowners facing repossession but hardly drew breath before stepping in to save banks and banking shareholders. While American firms are still obliged to mark-to-market there won't be any let-up in recession drivers either - the difficulties will be exacerbated by the damage they have caused.
Here the obsession that Brown has continued of bowing before wealth as if it has more value than people, where the worth of a person can be measured in their bank account and his failure to act to protect the poor, the vulnerable and the weak suggest that nothing will be done on Labour's watch to address the underlying problems which have created this avalanche of bad economic conditions.
Brown, of course, isn't entirely to blame, seeking to pin the blame entirely on him would require the same kind of naive simplicity that suggests that Blair alone took us to war time after time, that Barack Obama might change US foreign policy, or that Mugabe alone is the problem in Zimbabwe, but Brown must carry a large part of the responsibility for the problems caused.
His failure to act in the best interests of the people who elected him remains a terrible indictment of his betrayal of any collective ideology which might once have been part of a Labour leader's psychological make-up. Interestingly, considering the support Labour party members here are giving to Barack Obama (parallel to the hailing of the saviour that Blair received in the 1990s), his realignment since the beginning of the primary season is a remarkably similar abandonment of the principles he once professed to hold dear.
Perhaps if more politicians were willing to continue campaigning for the principles they professed to believe in we might one day aspire to the utopia described in this untitled William Stafford poem.
where the unknown soldier did not die.
This is the field where grass joined hands,
where no monument stands,
and the only heroic thing is the sky.
Birds fly here without any sound,
unfolding their wings across the open.
No people killed – or were killed – on this ground
hollowed by the neglect of an air so tame
that people celebrate it by forgetting its name.
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