Ministers... they're always so rash

The first thing that strikes any observer about the Jeremy Hunt (above) imbroglio at the moment - so little commented on by the press - is just how rash and reckless our governors must be.

The Prime Minister appointed him to make a judgement on a matter the new Secretary of State's opinions were crystal clear about. He was allowed to walk into a so-called quasi-judicial role that was always going to cause him and the Government a whole heap of trouble. Then - at the very, very least - he was completely ignorant as his Special Adviser sent a stream of deeply embarrassing and deeply compromising emails to the very people he was supposed to be sitting in judgement on.

Crazy stuff. And it might well still bring him down, despite David Cameron's furious, red-faced and rather swivel-eyed defence of his Minister today in the Commons.

But is this unusual, strange or new? Not a bit of it. What about Hugh Dalton, who told a journalist the key to his Budget while he was walking to deliver it in 1947? What about John Profumo, who lied to both the Prime Minister and the House of Commons when it became dreadfully clear that he had been pursuing an affair with a prostitute who was also sleeping with the Russian Naval Attache in London? What about David Willetts (now a Minister again, of course), who placed indelicate pressure on a supposedly-neutral Parliamentary Committee? Or Peter Mandelson, borrowing money for a mortgage from a fellow Minister and 'omitting' to tell his Permanent Secretary (or his mortage company) about the loan?

I fear that even the internet couldn't contain all the words I could spew if I went on. And on.

Jeremy Hunt, reckless? You bet. Is there anything new in this? Sorry, no.

Double dip recession: don't say economic historians didn't warn you

Well, well, well. Well, well, well, well. So it's a double dip recession after all. There's been virtually no growth in the UK economy now for two years. It's flatlining. It's in deep trouble - as is a government that is starting to lurch from crisis to crisis in a manner strongly reminiscent of the hapless Major administration of the 1990s.

There's a sense that European demand has been stagnating, and that certainly hasn't helped. And the present difficulties are to some extent a natural unwinding of the near-fatal heart attack the developed world's economy had in 2007-2008. That's especially affected a banking-and-services heavy UK economy.

But the major component of the present crisis is a fall in domestic construction and domestic demand - both baked-at-home crises that the Chancellor's rhetoric and tax rises, if not yet his direct spending cuts, have helped to heat up. Both roadblocks that anyone familiar with the economic crises of 1964-67 and 1973-76 would have seen coming a mile off. And remember: we are only just at the start of the fiscal contraction that the public spending squeeze will effect. Up to now government cash has been adding to growth. Want to imagine what will happen when that stops next year? No, me neither.

It was always risky to set out on this radical course at a time when there were very few engines of growth left in the West. And you know what? Economic historians warned you. We wrote policy papers. We blogged for thinktanks. We pontificated in the newspapers. We wrote to the newspapers en bloc. We raged in our own blogs.

To no avail.

Next time, perhaps Chancellors should listen to economic historians... and not to the outdated nostrums of the banks.

The banks still just don't get it

If you really want a (relatively) quick, eye-opening and really quite shocking guide to just how little the banks have learned from the Great Recession of the last five years, you could do worse than download this PDF, a report on 'the Great Repression' and government debt by HSBC. I know, I know... But give it a go. It's worth it in the end. The key passage runs thus:

Financial repression results from policies which allow governments to fund their borrowing through imposing costs on others. Financial regulations can be used to force financial institutions to lend more to government and, hence, less to others – domestically and abroad – through, say, higher liquidity requirements. Quantitative easing allows government to escape the disciplines associated with market forces by pushing bond yields down to low levels even when fiscal policy is out of control. Real interest rates end up too low – even negative – and savers are penalised.

So, let's get this straight... Interest rate falls are the fault of high-spending governments. They want to go on spending, so they force central banks to print cash and basically rob savers. Hmm. Well. There's a lot of truth to this second point - and as the report rightly says, without growth we're going to face quite a few years of very, very acute pain.

But the document is very thin elsewhere, especially on the narrative of what's just happened to us. HSBC weren't one of those banks that imploded, taking many billions of your money with it - so we'll give them something of a bye on that front. But to say so little about the roots of the crisis - basically, faulty regulation and over-lending - is to both airbrush history and to misunderstand the real reasons for those low interest rates. Savers are not being expropriated (and they are) because governments went on a huge spending spree: they are suffering because banks did, backed by governments while they posed as a cross between a one-way bet and a cash machine. Get that wrong, and nothing else you say about anything will ever be taken seriously again.

And even though we're letting HSBC (above) off the hook marked 'it's your fault anyway', economic theories mobilised in the rest of the paper are pre-Keynesian and basically sub-BA level prejudices. Even Harold Macmillan would have said, as he once did while Prime Minister: 'this is a very bad paper. Indeed, a disgraceful paper. It might have been written by Mr Neville Chamberlain's ghost'. They're all here - all the misconceptions. 'Crowding out', whereby government borrowing is supposed to throttle private borrowing - even though central bank lending, so excoriated elsewhere in the paper, gives the lie to that assertion. The need for 'market mechanisms' in the credit market to impose 'discipline' on governments - as if failing to give a political and a social lead, ignoring the views of voters, and allowing Spain (for instance) to lapse back into recession will really improve confidence. The importance of savers - when what we really need are spenders, indeed a crazy spending spree like we've never seen before... Especially in moribund old Europe. I could go on. But I won't. Because little actual academic economists say is listened to inside pin-striped heads anyway.

And yet such people still dominate our public discourse about debt, default, currency management and growth. For how much longer are we going to tolerate such illiterates leading the debate?

Might the Lib Dems cease to exist?

With the news last week that the Liberal Democrats had briefly fallen behind the UK Independence Party in the polls, one was set thinking: might the party just cease to exist? Rapid and near-fatal electoral decline has happened before of course, between the First World War and the consequent 1918 election, and the party's rout in the 1924 contest.

Well, it's possible. It's unlikely, actually, as the Liberal Democrats are doing better in council seat by-elections than the polls suggest. Lib Dems do better in areas where the party has MPs, perhaps a straw in the wind as to how they'll do 'on the defense', as Americans say, in 2015. Other politicians - notably Margaret Thatcher in 1990 - have declared the party to be 'dead', only to be bitten by the same beak they have satirised in the past (above).

Even so, the party does face losing many seats due to the seat distribution that will hurt them most of all - especially if they're relying on just such incumbency effects to protect them from the chill winds of coalition. And with the Conservatives still the likeliest in my view to be the biggest party in a smaller Commons, they might thereafter be faced with the doleful prospect of soldiering on in a loveless marriage that they care for less and less, an adjunct to a government that's long since passed their own Lib Dem sell-by date. It'll be hard to avoid a party split in such circumstances.

Their best solution? To pull out in 2014, force the Conservatives to govern for a year or so on their own without the ability to call a snap poll, and mount some fierce opposition to a minority Conservative government. Otherwise, they're in real, real trouble.

Welcome to amazing 'conferenceworld'...

Well, we've been silent here for a few days... It's because I've been living in what we might call 'amazing "conferenceworld"'.

David Lodge actually predicted and satirised this world in his hilarious 1984 book, Small World, laughing at a band of academics constantly flying around the world, chased by their own photocopied papers (and bar bills). But it's real. I've been bashed from pillar to post in the last couple of weeks, taking in - for instance - the superb Stress of Life conference in Exeter, focusing on well... the history of stress.

And I spoke at the deeply, richly fascinating The Navy is the Nation, at Portsmouth Historic Dockyard (above), a conference addressed by the First Sea Lord... Not your everyday occurrence to us workaday academics.

They were great events. But they were marked by me furiously pounding the keyboard at the back, with a wifi connection up, trying to keep up with my emails. While listening, listening, listening - more tiring than it sounds. Especially when you're on near the end (at both events). And on at least one occasion, I fell asleep and awoke unable to remember where I was. Such is life - the 'stress of life', indeed.

This isn't a moan at all - I met some great people and I enjoyed myself immensely.

But one does sometimes wonder, contemplating a new hotel room, a new sub-set of experts and a new topic: where will it all end? Our hard-writing Stakhanovite tendencies are pouring out more and more incredibly detailed testimony and analysis, but it's getting tiring - and like the Soviet economy itself, might eventually collapse under the weight of its contradictions.

The mist of meetings is beginning to clear a little, though. Normal service next week!

History shows that the Euro crisis isn't going to go away

So now it's Spain that's on the rack. As predicted here many, many times, the Euro crisis just keeps rolling on (and on). The bad news just won't give up - despite a period of eerie calm that actually made a bit less sense than the arm-waving, sell-everything panic. Italian growth has also been revised down, and Portuguese banks' debt upwards. With even bankers calling for less austerity, Europe's crazy obsession with cuts and balanced budgets continues to steamroller social services, standards of living - and even take despairing citizens' lives.

Spain's painful descent into economic crisis is just another example of what the German government's insistence on a so-called Fiscal Union (and the strength of a tiny minority of austerity economists) really means. Essentially, it's this: Germany is highly efficient, very well trained, good at manufacturing and an export success. Everyone else has to be as well - despite long-standing differences in culture, economic structure and differential productivity that will take many decades to smooth out (if that feat is even possible, which I doubt). Those decades will see southern Europeans forced to fit into ever-tighter corsets that will cause pain - but little gain. In a situation where these countries have little credit to invest, or to splurge on any short- to medium-term relief, hundreds of millions of Europeans are going to find that they are a lot poorer over the next ten years.

It'll be a slow motion crisis, then. A long-running wound, which occasionally seems like it's healing, and then bursts out and flares up again. Rather like this week, actually.

And we shouldn't be surprised. The US didn't fully recover from the Wall Street Crash and the Great Depression until at least the Second World War. Britain's own interminable sterling crises went on for thirty years - bursting out in 1947, 1949, 1956, 1961, 1964-68 (over and over again), 1972-73 and 1976. The South American and African debt crises rumbled all the way through from the 1970s to the 2000s - and the echoes continue to reverberate.

I'd get used to headlines about 'crisis' if I were you.

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.