One strength of the US system of government is that it allows, from time to time, a completely fresh start.
Gordon Brown’s promise of ‘change’ when he became prime minister sounded hollow because he had been at the heart of government for a decade and was an architect of New Labour, which represented little more than continuity with Thatcherism, as modified by John Major.
Barack Obama, however, has come to power not only in opposition to the incumbent Republicans but to the establishment of his own party. His promises of change carry conviction. And if ever the need for change was more than a banal sound-bite, it is now.
The present crisis, it has been said, requires experience. Gordon Brown, at least initially, got an opinion poll bounce as economic conditions worsened because, even while pouring money into indigent banks, he managed to look older, wiser, more weathered and more prudent than ever. George Osborne, despite his youth, tries to imitate a 1950s bank manager. David Cameron, it seems, still finds it necessary to add extra experience to his team in the form of Kenneth Clarke, aged 68.
But experience is what we don’t need. We had experience in the 1930s when a national government was formed, headed by Ramsay MacDonald and Stanley Baldwin, each of whom had been prime minister twice previously. Much good it did us. Experience is no use if it is the wrong kind of experience.
Whatever Brown believes — and, once you’ve reached high office, it can be hard to remember — the only thing he knows is that Labour governments don’t get elected if they spend too much money, intervene too often and, above all, take companies into public ownership. Just now, those are the wrong things to know.
For a long time, politicians tried to pretend the credit crunch was a problem confined to the financial sector that wouldn’t affect the ‘real economy’. As we now know, it strikes at the basis of economic activity. Capitalism depends on availability of credit. No credit, no capitalism, no jobs, no buyers in motor showrooms, no votes at the next election. The government will keep having to devise new rescue packages for the banks as long as the credit fails to flow.
Banks won’t lend for three reasons. First, they already have unquantifiable ‘toxic assets’ — a fancy term for bad debts — and they will use any capital they lay their hands on to offset them.
Second, a deep recession turns almost every borrower into another potential bad debt. Established businesses might be bankrupt in a year’s time. Middle-class professionals and skilled workers might suddenly lose their jobs.
Third, though we now worry about deflation, it could easily be succeeded by high inflation. Printing money — ‘quantitative easing’ is the fancy term — is probably the only long-term solution to the crisis, loath though politicians are to admit it. The potential downside is rising prices but the upside is that the value of our enormous debts are deflated.
Why, given that possibility, would the banks saddle themselves with more debts? It might seem outrageous that, having been so recklessly imprudent, they should now be prudent to a fault. That, however, is the logic of their position.
The corresponding logic for governments is the opposite: to be imprudent where we normally expect them to be prudent. They should spend as though there is no tomorrow, pile up debt, lend generously, take risks with the currency, even hand out fivers on the street. That was roughly what John Maynard Keynes recommended in the 1930s; even Milton Friedman thought that, in recessions, the state should drop money by helicopter. As Keynes memorably said, it is no use thinking of the long term because in the long term we are all dead. The function of a government in a mixed economy is to do what the private sector can’t or won’t do. If the private sector won’t take risks, the government should.
That leads inexorably to full-scale nationalisation of the banking sector. Taking direct control of banks is the simplest, quickest way to get them lending again, instead of trying to do it at arm’s-length and designing complicated insurance or ‘asset protection’ schemes for what is essentially uninsurable.
If commercial considerations stop banks lending, the answer is to take them out of the commercial sector so that they act in the national interest. That is obvious to investors, who are selling bank shares because they believe nationalisation is inevitable.
Yet it is not obvious to Brown. He cannot be expected suddenly to unlearn the things that took him half a lifetime to learn: public debt bad, government risk bad, inflation bad, nationalisation bad.
Perhaps somewhere there is an unknown young Briton who has never learnt those lessons, and can start afresh. Alas, the British system would never allow him to get near Downing Street.
Peter Wilby is a former editor of the New Statesman
