Thursday, July 10, 2008

Mr. Brown and what we have to fear

On March 4th 1933 President Roosevelt made his inaugural address at the east portico of the US Capitol Building. In the face of a catastrophic failure of the financial system and almost total economic meltdown he began his leadership on note of optimism: "This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

His speech, which is well worth reading fully, stands out as the point when the United States accepted the need for radical measures. Though classical Liberals, with the benefit of much hindsight, criticise many of his most interventionist measures, at the time they seemed entirely justified- the scale of the economic collapse was simply so gigantic. More to the point, Roosevelt with a combination of practical measures and optimistic determination was to prove to be an exceptional leader- his success crowned with popularity and with repeated re-election until his death in 1945.

The last few days have bought home to many the scale of the crisis in the UK in 2008. As in 1929, to use Paul Johnson's evocative phrase, "the Everest [of the stock exchange in 1929, the debt markets in 2007] was a mountain of credit on a molehill of actual money". the consequences of the binge are the same: bank failures. So far we have only seen the failure of Northern Rock, but we have seen the dramatic impairment of almost all the banking system.

Rumours continue: Bradford & Bingley, Alliance & Leicester, HBOS, even RBS and Barclay's all need to repair damaged balance sheets- and some will not be able to complete the process independently. Not merely individual banks, but the whole banking system is under major strain. The crisis, long predicted, is upon us. As house prices wither and credit simply stops, we are now seeing a surge of bankruptcy- confidence has gone, and now the expectation is that the UK will now face not merely a downturn, but a major recession and even -whisper it those who dare- a major depression.

In the face of the gathering financial storm it may be valuable to think about who is at the helm. Gordon Brown is a man moulded fully in the tradition of Scottish Presbyterianism. in some small part of his psyche is the sense that the bad times are the punishment for the "excesses" of the good times. Instead of optimism, he offers the glum realities of belt tightening and the hair shirt. He accepts the reality of difficult times. However his intense and gloomy nature is the opposite of what is required. As some of the more obvious journalists have noted, he carries something of Private Fraser of Dad's Army- an undertaker whose catch phrase "we're all DOOOMED, I tell ye" reflects something of Brown's own gloomy personality.

In fact, the problem is Mr. Brown's lack of vision.

When times were good as Chancellor of the Exchequer, Mr. Brown spent all of the seed corn that could have seen us through harder times. All of the so-called limits that he proposed in the name of Prudence, he broke. Instead of reducing borrowing though the cycle, he increased it. Now the cupboard is bare. In the face of the banking crisis and the oil price spike, he has no reserves.

Small wonder that Russia- now grown rich and confident on the back of its burgeoning oil revenues- feels able to treat the injured lion with impunity. It now seems clear that the murder of a British citizen on the streets of London- Alexander Litvinenko- came from official Kremlin sanction. Meanwhile, the major investments of British companies in Russia: Shell and BP, are now being stolen from them. The prospect of Scottish separatism only adds to the contempt that the Kremlin has for the UK. All of Mr. Brown's policies seem to give succour only to our enemies.

Now, Mr. Brown can only see the downward slope. Unlike President Roosevelt, he misses the wider sweep of history: that eventually both booms and busts come to an end. His gloomy and pessimistic personality can only intensify the fear. In the end, we can not see the end of the crisis while he remains in office. His role is that of President Hoover: incapable of providing the energy required to deal with the critical problems.

It will make the difference between an 18 month downturn and a downturn that lasts twice as long. Mr. Brown, obsessed by his fears, can not understand that it is now fear itself that is the biggest enemy.

1 comment:

Icarus said...

I think Brown will be swayed by the economic orthodoxy which seems to control the Treasury, the BoE and almost all the city scribblers.

We need some thing far sighted, though due to the damage done to countless industries which no longer exist it is hard to know how to start.

Where training to be a hairdresser gets funding for the regional development agency, business links and the actual training provider - why bother producing candidates for the more difficult jobs.

We have decided that we wanted a service economy and are paying for it.