'I beseech you in the bowels of Christ, think it possible you may be mistaken'
Let’s review what brought us to the present economic catastrophe. Interest rates were kept too low for too long. Banks were encouraged – in some cases obliged – to lend money less discerningly than they wanted. Public and private debts were too large. State spending was rising, squeezing the productive bit of the economy in order to engorge the unproductive bit. Perhaps worst of all, a crony-capitalist nexus had grown up, in which the distinction between governments and large corporations was blurred.
When the crisis hit, there was no slack to cushion the impact. Yet governments responded, not by re-examining their assumptions, but by doling out more of the medicine that had sickened the patient. Interest rates were lowered even further. Banks were told to lend even more recklessly. First financial institutions and then entire countries were bailed out by taxpayers. Inflation was deliberately stoked. Spending and borrowing rose to undreamed-of levels. Large corporations and, indeed, entire EU member states began to conduct their affairs – logically enough, I suppose – on the assumption of a taxpayer-funded guarantee.
These policies have, utterly predictably, failed. The countries which decreed the biggest bailouts have generally suffered the worst downturns. Far from averting recession, their governments have burdened generations yet unborn and unbegot with debt.
I don’t say write these things for the sake of saying “I told you so”; I’ve been in politics long enough to know that no one likes a smart-aleck. I’m writing them, rather, because many of the world’s leaders are still, incredibly, pursuing the same policies that got us into this mess. Interest rates are still being kept artificially low, at least in Britain. Inflation is rising as the economy slows. Larger and larger bailouts are being decreed in order to keep the euro intact. Spending is higher now than it was when Gordon Brown left office, and 2011 will be the third year in a row in which the state has accounted for more than 50 per cent of our GDP.
Three years after the collapse, it is surely time to change course. We need to stop printing money and start raising interest rates, to cut taxes and scrap regulations, to rebalance the economy toward the private sector. Are these ideas really so radical?
-Daniel Hannan, writing in The Telegraph, August 10th, 2011