If matters were not so fraught, we could revel in the intellectual excitement. The world is in the grip of a contradiction. We have a crisis caused by excessive credit, fiscal laxity and asset-price inflation.
So the cure might seem self-evident: fiscal tightening, restraints on credit and an asset-price correction. But that would be catastrophic, leading to the collapse of economic activity throughout the globe, another great depression, political and social unrest leading to – who knows how bad it could get?
So the solution to excess credit must be more credit; to fiscal promiscuity, higher deficits; to swollen asset prices, a safety-net. This is exceedingly difficult to organise. There is no formula to explain how much new poison would be necessary to mitigate the effects of the existing toxins in the world’s bloodstream.
A few days ago, Vice-President Biden upset the White House. He said that even if we took action that seemed to be 100 per cent right, there would be a 30 per cent chance that we were wrong. Joe Biden was adjudged to be guilty of unhelpful candour. The rest of us can only hope that 30 per cent is not a gross underestimate.
None would ever accuse Gordon Brown of excessive candour. But he really ought to refrain from footling irrelevance. Steps to prohibit 100 per cent mortgages; is he not aware of the changes which have occurred in the financial markets? It is hardly as if he had nothing better to do. The PM would like us to believe that he has spent the past few months in hyper-activity to save the world. This is nonsense. Apart from the first measures that he took to recapitalise the banks, not much has happened.
We were promised an insurance scheme to protect commercial loans. Where is it? We were told that there would be another insurance package, to underwrite securitised mortgages. It has still not appeared. If this was a war, we would be losing it. The inevitable complexities of detail are offered as an excuse. But that is not the main complication. It arises from Gordon Brown’s personality.
Chris Mullin, a former junior minister, is about to publish his memoirs. If there were ever a move to canonise Tony Blair, which would require evidence of two miracles, the Mullin book could provide testimony to the first one. Given the dysfunctional behaviour of the Chancellor of the Exchequer which Mr Mullin documents, and the strains that this inflicted on government at all levels, it is a miracle that the Blair administration did not implode. The Brown one may now be moving in such a direction. According to reports from No. 10, the atmosphere is sulphurous. There are a lot of difficult decisions to be taken. For the key civil servants, this means endless, gruelling, stamina-sapping days of hard thinking on little sleep. Even under the calmest PM, that would be a stressful business, and there is nothing calm about Mr Brown. His constant foul temper makes everything much harder than it need be. Junior officials are afraid to speak their minds. Vital stocks of nervous energy are diverted, to the task of hating the boss. Meanwhile the boss micromanages and dithers. Mr Brown lays claim to morality. During the gravest crisis in modern peacetime history, he is running his government in a profoundly immoral fashion. There is a further problem. As the risible 100 per cent mortgage pledge revealed, Mr Brown’s main priorities are not economic. They are electoral. He is determined to exploit the G20 summit in April to enhance his prestige.
Although all political leaders tend to use these occasions for grandstanding, our PM will be gargantuan in his shamelessness. He will want the voters to think that the ‘G’ in G20 stands for Gordon and he hopes that the delusion will last until polling-day. For G20, read G2010. It is not clear whether many other heads of government will cooperate with Gordon Brown’s attempts to use the G20 as a benefit match. But his position would be much stronger if he were able to claim that he had taken steps to promote recovery rather than merely talking a good game.
There is a great deal of preparatory work to be done before the summit. Fortunately, the protectionist noises which Mr Obama uttered during his presidential campaign do not seem to reflect his real views. Electoral cynicism is much less damaging than economic naiveté. Yet it would be useful to come up with ringing declarations to confound the protectionists while reassuring anxious workforces that there are alternatives.
At present, the Chinese are probably top of the anxious workforce league. Up to 20 million people have been thrown out of work in China. Most of them have been able to return to their villages where they can at least find enough to eat. But in recent years, Chinese horizons have broadened. A bowl of rice is no longer enough to guarantee acquiescence. Significant unrest in China would have a disastrous effect on the world economy. If China is unable to resume export-led growth – and rising living standards – how long will she remain stable?
Up to now, the Chinese have been surprisingly reluctant to assert themselves in international forums. This may reflect the leadership’s political insecurity. If so, it could be slow to change. But Chinese cooperation is vital. For a start, the IMF might need it. If more Eastern European countries have to appeal to the IMF because after they have brought down half the banks in Austria and Germany, the rest will not lend them enough to meet their budget deficits, the Chinese may be the only nation with cash available.
Again, there would be piquancy if it were not so serious. Twenty-five years ago, who could have imagined the day when China might become the lender of last resort to the former Soviet empire? (Just as long as the UK does not have to join the queue.)
Europe is condemned to months of economic turbulence, at a time when the prestige of the political class has never been lower. Believing that their sufferings are the fault of crooked bankers and incompetent politicians – or vice versa – many people might feel entitled to take their grievances onto the streets.
Whatever else the Chinese do for us, we have fallen victim to their curse. We are living in interesting times.Reuse content