Why do political leaders repeat the mistakes of the past? Even when vividly aware of the dire consequences that arose when a particular policy was previously implemented, they cannot resist turning to the same policy again. It’s as if they feel trapped and have no choice but to march knowingly towards disaster once more.
David Cameron’s “help to buy” policy is the latest example. Cheap borrowing for mortgages in the US triggered the global financial crisis in 2008. The UK suffered in particular because of high levels of personal debt fuelled by mortgages on overpriced homes. What do Cameron and George Osborne do in response? They hail a new right-to-buy scheme that offers cheap mortgages in a booming market.
Yesterday, Cameron wrote in the Sun newspaper that his policy was aimed at those “who work hard, put in the hours and can afford a mortgage – but can’t afford sky-high deposits”. Here is part of the answer to my opening question. Leaders hope that, whatever the long-term consequences, policies that have proven to be mistaken can have a dangerously attractive, short-term allure to key voters. Yesterday, the Prime Minister invited some of the so-called beneficiaries of his scheme to lunch at No 10 – the reverse of Margaret Thatcher who famously left Downing Street and popped in for tea at the newly owned homes of former council tenants. But no doubt Cameron will be popping in for tea some time soon as the 1980s are revisited one more time.
Admittedly. in an act of narrative genius Cameron and George Osborne have convinced most voters that the entire global meltdown is the responsibility of Ed Balls, but deep down they must know this is not true, that other factors outside the remit of the current shadow Chancellor led to the collapse of Lehman Brothers and before that of the cheap mortgage lenders in the US, Fannie Mae and Freddie Mac.
Still the British duo hails their new version of the policy that caused the economic crisis, in the perverse hope that it can become part of the solution. Cheap lending and a property boom in the South-East are the febrile combination that fuel another fragile, imbalanced economic recovery, and we are all supposed to celebrate as if for some reason it will be different this time. In fact, the familiar sequence of boom and bust could be worse. Interest rates are low but they will rise over the next few years. Some who can just afford a mortgage now will struggle then.
The past repeats itself in more precise ways. Today’s report from the Royal Institution of Chartered Surveyors shows that demand for housing continues to outstrip supply by an alarming margin, with the Government’s right-to-buy scheme one potential cause of booming house prices. When Margaret Thatcher launched her “right-to-buy” initiative, previously affordable rented homes became part of a soaring private property market. Ever since, there has been a shortage of affordable rented accommodation, an emergency that will not be solved by penalising those who live in rented homes with a spare bedroom. The “bedroom tax” does not build more affordable homes. Similarly, Cameron’s help-to-buy scheme will contribute to the private property boom without addressing the basic problem, which is a lack of supply.
Here we go again – leaders always tend to go again. I noted in September, when Cameron and Nick Clegg supported a military attack on Syria, that they were like characters in a dark film noir, insisting that they were not repeating the mistakes of Iraq while repeating them almost precisely until the Commons prevented them from going further. On economic policy the same patten has applied many times.
In 1970, Ted Heath was elected as a firm opponent of incomes policies and lost power three-and-a-half years later seeking to enforce one. Harold Wilson came in to No 10 determined not to implement such a mistaken policy. By the time he retired he supported an incomes policy, even though he knew what had happened to Heath. Jim Callaghan knew, too, and yet forced one through in ways that led to his dramatic fall.
This is the deeper answer to my opening question. Leaders cling to the failures of the past because the unknown future is even more frightening. Cameron was smart enough to have some doubts about Iraq but, when President Obama wanted support for military action of imprecise consequence, he was more than willing to help out. On the domestic front, Cameron used to say there were errors made in the 1980s that his party must not make again. Clegg repeats persistently that they will not return to the 1980s. And yet here they are implementing a help-to-buy scheme as prices boom.
Lending is cheap in a feverish property market – the very combination that caused the 2008 crash in the first place, and the wildly oscillating economic fortunes in the UK during the 1980s. The past is a treacherous place, but it is the only place they know.Reuse content