Tuesday, October 14, 2008

Monetary Independence

Keir Hardie, Nye Bevan, Clem Attlee - what would you give to be living now in the era when much of the banking system in the UK is nationalised? The speed and depth of the international financial crisis has been astonishing and the response of the Government - and others round the world - equally amazing and unprecedented. In the 1930s they wrung their hands and did nothing, except for vain attempts to devalue currencies and to cut expenditure, which made matters worse. Today they seem to have absorbed some of the elementary stuff I learned in my days as an economics student, and realised that confidence is the essence of successful capitalism.
And in a way I feel strangely vindicated. During the late 1970s I wrote an article in an accountancy magazine criticising a fellow writer who argued that the Bank of England should be independent and how awful and ghastly was any hint of state control. I said that in the end the key questions of financial policy must be made by responsible governments not by faceless officials. When Gordon Brown made the Bank independent in 1997 my adversary must have been well pleased. Now I hope he is choking on his humble pie. When it really mattered, and though the Bank was keen to keep interest rates up, political pressure forced a cut. At a stroke the heart of British banking has been regulated. Furthermore the coordinated action round the world shows the meaninglessness behind the idea that central banks can act independently.
With any luck the lesson will be extended to the ghastly public-private finance arrangements forced on the Tube by, yes, that man again, Gordon Brown. Can we have another about face please?

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