Wednesday, 11 April 2012

Mr Osborne and the wisdom of Sir Samuel Brittan

So it was off to the Financial Times last night for the launch of Professor Roger Middleton's edited version of Sir Samuel Brittan's Diaries from his time as a civil service 'special adviser' (before that term was even coined) in the 1960s (above). I know - what a glamorous life we historians lead.

But before I go too la-di-da on you, it was actually Sir Samuel's wisdom in the discussions that followed his opening remarks brought me up short. I hadn't quite traced out or realised just how radical this apparently and previously 'Thatcherite' and neo-liberal commentator has become. His excoriating comments as to the Coalition's ridiculous fiscal austerity - and the 'totem' of a balanced budget ('whatever that means', he said) could have taken the paint off the walls. Were they not great sheets of glass looking out onto St Paul's the river.

And it's Mr Osborne's foolish budgets that are doing it - turning a financial journalist who once lauded Hayek and attacked inflationary British governments into a symbol of socialist economic resistance among many on the Left. How times change! In any case, I thought I'd let you into some of Sir Samuel's more pungent sayings from a published 2010 lecture on just this subject, the text of which you can download here.

On the absurdity of choosing between 'left wing' and 'right wing' economics: 'Enormous confusion has been caused by the misleading identification of Keynesian economics with high public spending. There is no reason why Small State Conservatives or Liberals should object to demand stimuli at the appropriate time... As Keynes himself said near the end of The General Theory: if effective demand can be managed, the virtues of competitive capitalist markets make themselves felt once more'.

On the agreements, not the disagreements, between Keynes' ideas and neo-liberal Hayekian views: 'This counterrevolutionary doctrine [Hayek's] did not say that demand could be left to itself, whatever some of its adherents may have supposed. Nor did it deny any of the Keynesian propositions with which I started. But it did suggest switching from the Old Keynesian emphasis on real demand to demand management in nominal terms'.

On the real reasons for the 'Great Recession' (i.e. Asian savings and low demand): 'The proximate cause was the credit crunch which led to an investment led recession of the classic pre-World War Two type. There were other forces behind the credit boom and bust emanating from world wide trends in savings and investment, above all the Asian savings surplus which we can discuss later if you like. Whatever the trigger, there was a worldwide reining in of bank credit and consequent fall in spending of all kinds which threatened a new depression. Unprecedented monetary and fiscal stimuli averted that threat, but world activity is still well below a sustainable level of capacity operation and will be so whether or not we have a so-called double dip recession'.

And lastly, I like this one on the need to act now, and ourselves, rather than wait for others: 'the world as a whole is a closed economy. Each country on its own faces a collective action problem. If we wait for world government to solve it, we will all go to hell and high water'.

There we go - the truth according to someone who's been there, and done that, many times over. You don't have to trust what I say after all.

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