…with the world’s largest bank, Citigroup, and largest carmaker, General Motors, teetering on the edge of bankruptcy.

This will be enough to get me sent to pedant’s corner, but Toyota makes slightly more vehicles than GM, and I think HSBC became the world’s biggest bank (in terms of market cap.) during the banking crisis – due to its comparatively large capital base.

*Shrugs and goes back to reading the rest of the article*

The government is doing badly because it’s put together a very very bad package which leaves us with the worst of both worlds; hike after hike on taxes (which will hammer people on lower incomes too) and public spending that is going to be lashed in the coming years, all based on the insanely optimistic prediction of Darling that this will only last a year.

So, people support more top rate tax and I am in favour of progressive, redistributionist taxation but what is the point of a tax band that raises next to no revenue because only 2% of taxpayers actually pay it?

Good luck on QT, Sunny.

The reason Labour is failing to win this argument has nothing to do with narrative it has to do with fundamental facts of life.

Every time the paradigm shifts there is a short lag before eternal truth reasserts itself.

Labour has continually talked a good game and yet is still guilty of being over-optimistic about its economic predictions (on growth among other things) – how long can this continue? how long can they continue to defy reality?

Labour activists are still arguing in terms of electoral success when our economic well-being is being gambled – not only is this distasteful, but is a perversion of Brown’s own mantra about prudence!

Labour is losing the argument because Labour has lost the trust of the people.

Brown is brewing a perfect storm for himself which will destroy his party for a generation or longer, just as John Major did for the Tories in the early nineties.

The only questions which remain are the precise day of reckoning and whether the public will make a democratic choice or an undemocratic choice for the ultimate replacement.

The government is losing the argument because the crisis happened on their watch, and because they kept claiming that there wasn’t a crisis; and that even if there was, the UK is somehow uniquely placed to do so much better than everywhere else. It’s also because having spent the last decade or more buying into the same neo-liberal, deregulated model that got us into this mess, they can scarcely claim the credit for trying to pass themselves off as serious born-again Keynesians who Have A Plan to deal with the crisis/get re-elected (delete where applicable). In some ways, the government is in exactly the same position as the Tories were after Black Wednesday, and show the same ‘why aren’t the bastards more grateful?’ level of incomprehension.

As for the Tories: Cameron and Osborne have one thing going for them – they’re not in charge, and don’t have to clean up the mess unless they win in 2010. So one one level they can sit tight and hope Labour’s unpopularity will see a Tory victory. That said, if you follow Osborne and Cameron’s pronouncements on the economy and what to do about the crisis, you’ll find a trail of inconsistency, half-baked or feeble ideas and an instinctive belief that somehow the free market (yes, the same one that got us into this fine mess) will sort it all out in the end. Osborne wants the banks to insure/ensure (?) lending (see Humphreys interview on Today this week), but he can’t explain how. Cameron wants an ‘Office of Budgetary Responsibility’, which sounds like outsourcing monetary and fiscal policy without any clear idea of what that might mean in practice. Cameron has also ditched the commitment to match Labour’s spending plans, thinking that he can deliver permanent tax cuts funded by….well, funded somehow anyway (whatever’s down the back of the No 11 sofa, slaughtering anyone who works in the public sector, sacking Jonathan Ross, ‘efficiency savings’…you know the drill). In short, he and Osborne want to be seen as the party of ‘sound money’, but the reality is that they know nothing else other than a Thatcherite strategy of slash ‘n’ burn. Even the CBI aren’t following them down that road. By 2010 we’ll know who was right – or rather, whose ability to frame the debate was more effective.

The BBC Online article about debt “not being out of control” – their calculation of debt doesn’t include PFI obligations (£110 billion), nuclear decomissioning costs, or unfunded public sector pension liabilities (£1 trillion). If you want to talk about Labour and narrative, Gordon Brown’s reputation relies on us not pulling back the Wizard’s curtain and asking why all of our debt isn’t being counted.

As for Labour trying to “temporarily boost the economy to stabilise balance sheets, and pay off the debt once confidence returns,” this isn’t what Labour has been doing. Net debt is up 25% since 1997. Labour didn’t pay off debt “when the sun was shining” and now won’t pay off debt when we need to fix the roof.

Darling’s plan focuses on cutting VAT and helping high street banks. Only £3 billion of the £20 billion “reflationary boost” of the PBR is capital spending. If we want a long-term boost, for long-term economic benefit, this isn’t the right way to proceed. If high street banks were part of the problem, then surely, part of the solution should involve options other than high street banks (credit unions, local cooperative trusts, banks like the Co-Op or Triodos, building societies like the Ecology Building Society). It’s disappointing that Labour are trying to re-establish what has failed, rather than trying to dream up something new.

That debt funded BBC article does not demonstrate that debt is under control if that is supposed to mean it is remotely where it should be . I do not have the time but its full of holes and show quite the reverse.
The Labour Party say that if tax cuts that are properly funded and long term they would hurt the economy. Here they have a sort of point .Clearly the demand push would be lessened. Conservatives say further gambling will mean that interest rates will have to stay higher and sooner or later this has to be true . Major was better placed and this is what lead to the early good years .Its hard to ignore something that actually worked and moreover something that Brown spent ten years claiming to be signed up to while debt DID slither out of control (…no-one incidentally really believes debt is as in that article , cross rail Northern Rock , PFI s , pensions , its crap and debt is out of control by Brown `s self proclaimed standards anyway . )
Lower interest rates would be a longer and less distorting benefit to business and the extent to which public sector spending does any good to anyone is highly debatable . Everyone knows it includes a lot of waste which dishes the Labour response . Most people in the country , you notice will accept these individual planks of the Conservative case even if they have not yet made the fence . Conservatives then are potentially on exceedingly strong ground .
Whats more tax cuts win votes and Labour cannot promise them. We have had a country that has been tricked into going much further left than it wanted to or voted to. Hence debt is where tax should have been and tax is hidden .
Why not become the only lefty in the world to have any comprehension of supply side economic s and why it might be that shoving demand (ie money) at a problem may only have a temporary inflationary effect and be spent on imports unless there is a rise in productivity That means Cutting the state , painful structural change ( and the more delayed the wore it will be ).

Anyone who says PFI obligations are £110bn either doesn’t know what they’re talking about, or is twisting the figures: the correct figure is £30bn.

Counting unfunded public sector pension liabilities is a nonsense – they’re not counted by any other government, and they’re not actual debts that the government is contracted to pay. Yes, it’s money that’ll probably be paid out at some point – but so are most healthcare costs for everyone who’s currently alive, and we’re not trying to include the net present value of those in the national debt.

Finally, as of now, the national debt is only above its 1997 value if you include Northern Rock liabilities, which isn’t a sensible way of looking at the government accounts. Those excluded, we’re about 4 percentahe points below 1997…

I’d expect idiots like Newmania to believe the Tory talking points Scott lists above; but it’s a shame they’ve become current among sane-liberal types. And that is why Labour has lost the argument [*]: people don’t understand economics, and – with the exception of a few people who know what they’re talking about at the BBC, the FT and the Economist – the press feeds them a ceaseless diet of lying anti-government propaganda masquerading as economic analysis.

[*] to the extent that it has lost the argument – the polls, and the City’s reaction to yesterday’s announcements, make me a little optimistic that the blogland reaction is overblown comedy.

Newmania: Why not become the only lefty in the world to have any comprehension of supply side economic s and why it might be that shoving demand (ie money) at a problem may only have a temporary inflationary effect and be spent on imports unless there is a rise in productivity That means Cutting the state , painful structural change ( and the more delayed the wore it will be ).

…because this is just more of the same from the 1980s? The Tories seem to want to cut taxes because…well…they just want to cut taxes – it’s just that this time there’s no North Sea Oil or sufficient numbers of unemployed scapegoats to make the sums add up.

Also – worth noting that there is absolutely no downside risk from Brown and Darling’s stimulus plan. Possible scenarios:

1) Ricardian equivalence holds. The tax cuts and infrastructure spending are matched by people increasing saving to pay for future tax rises. Increased savings slightly bolster the banks’ balance sheets. The economy acts exactly as it would have done if the government had done nothing (whether grow/shrink/stagnate); when the debt is due, the resulting rise in taxes is paid out of savings. We get some new infrastructure.

2) Ricardian equivalence doesn’t hold. The tax cuts and infrastructure spending stimulate the economy, making the recession shallower than it otherwise would have been. When the global recovery comes in 2010, taxes start a small upward trend and public spending a small downward trend in order to pay down the debt. National income is about the same by 2012 as it would have been anyway, with less decline in 2009 and less growth in 2011 than would otherwise have been the case. We get some new infrastructure.

3) Everything is entirely fucked and the global economy collapses. We bash each other’s heads in with rocks to feast on the goo within. A few % on the fiscal deficit, back in the days when we had concepts such as “government” and “money” is the least important thing to anyone ever.

Red pesto…are you unber the impression the North Sea oil ran out ?

Here is a schematic diagram of North Sea oil production during the 1980s: /
Here is a schematic diagram of North Sea oil production during the 2000s: \

It’s not run out yet, but under Thazza the effect was to provide a rise in tax revenues from where the economy would otherwise have been, whereas right now we’re seeing the opposite.

John B thats priceless

“…..After that, she lies in bed, unable to find anything to be glad about. Then the townspeople begin calling at Aunt Polly’s house, eager to let Pollyanna know how much her encouragement has improved their lives; and Pollyanna decides she can still be glad that she had legs….”

Just a few assumptions in there ….I mean no more than three per line oh I wishi had the time .Rats

Shouldn’t the question be “Is the government losing this argument?”

Subject to Anthony Wells’ caveats, the government’s position in the YouGov post PBR poll is unchanged, and the Tories are down a point.

“I’ve a perfect demolition of your argument, but I don’t have the time to make it. Because I’m too busy making ignorant trolling comments on other articles”. Colour me ‘convinced’…

Here’s the YouGov piece. Jono has a point.

If I point out that we have 630 major PFI projects around the country, and they represent £110 billion that taxpayers will have to pay, we can’t just dismiss that as a “Tory talking point.” We can’t have a long-term sustainable economy if we keep chaining ourselves to 30-year contracts that feed the private sector. Britain will be spending more on interest payments on our debt (£40 billion, £50 billion by pessimistic estimates) by 2010 than on schools (£31.9 billion). Or, put a different way, £40 billion on interest payments is 2/3 of aid to all developing countries in 2007 from the US and European governments. I can’t work out how building up this much debt is progressive.

Well, its getting a hammering in the press. Sure, thats largely right-wing but still, it will affect the polls. I just think they haven’t made the case properly enough.

“If I point out that we have 630 major PFI projects around the country, and they represent £110 billion that taxpayers will have to pay”

I pondered a while back if part of the attraction of PFI was that it effectively bottled up the Conservatives from cutting health and education budgets to pay for tax cuts, and therefore eroded part of their voter appeal, as well as providing a pliant group of businesses dependent on PFI for their revenue and who’d therefore be unlikely to donate to the Conservatives on the turkey/Christmas principle.

I dismissed such unworthy thoughts, of course.

“We can’t have a long-term sustainable economy if we keep chaining ourselves to 30-year contracts that feed the private sector”

It rather depends on what the PFIs are for.

If they’re to provide school buildings, or hospital buildings, then assuming you think a long-term sustainable economy will feature public-sector schooling and healthcare, there doesn’t seem a particular problem with doing so under 30-year contracts. Indeed, as Tom says, it ensures that these services will be provided in the future (for all the London Underground PFI’s faults, the regime has forced the government and future governments to commit to long-term funding of the programme even as budgets get tight because of the massive penalty clauses that would be imposed otherwise. Given that most of LU’s faults are due to stop-start investment programmes begun and cut on politicians’ whims over the previous 50 years, this is better).

And the reason the gbp30bn is relevant, rather than the gbp110bn, is that you account for services in the year that they’re provided. Most contracted PFI payments are (e.g.) due in 2018 for cleaning a hospital in 2018; since neither side of the deal will happen til 2018, there’s no point in accounting for it now. The gbp30bn is the extent to which future charges are payment in arrears for services or infrastructure that has already been delivered (which obviously is debt and should be accounted as debt).

I would like to see some focus on the Conservatives whining on about lower interest rates like a broken record and using buzz words like ‘monetary activism’ and muttering about the Labour party putting taxes up in the future. In my eyes the government are winning the argument because they actually responded to the crisis quickly instead of simply falling back on centre right rhetoric. The Conservatives are getting more boring by the second.

Honest I do work JB. Ok lets say it is not entirely impossible that the money is spent and it averts the worst of deflation /causes inflation sucks in some imports say then when it stops we just have bigger slump because interest rates have been artificially high and there has been less productive shake out ,waste and inefficiency are retained or we have a currency crisis and the spectre of all and any of this crushes the remnant of entrepreneurial activity we have left . Then unemployment will rocket ( even more) and create a worse fiscal crisis and we will be in more of a hole than we are now .Some of this took place in the 70s when Labour brought bouncing baby stagflation into the world (odd how this impossibility seem to have actually existed ). You assume demand and growth are in a direct relationship and that is magnificently simplistic with debt at the levels it is now the argument that we are too fiscally conservative is a hard hard one to make .By your internally coherent argument we might as well borrow ten times as much. Which is what I meant by my Polly-anna quote which I think of as a well aimed critique rather than an ignorant troll but you know best .

No idea what ‘colour me’ means , sounds sort of fashionable though so that must be a good thing .

Lets say it is not entirely impossible that the money is spent and it averts the worst of deflation /causes inflation sucks in some imports say then when it stops we just have bigger slump because interest rates have been artificially high and there has been less productive shake out ,waste and inefficiency are retained

The pound is clearly going to be at lower levels against the $ and the € than it was pre-2007 for the foreseeable future, because the capital-importing side of the City will be less important than it was from 1985-2007.

This means that *all other industries* are more competitive than they previously were (I’m seeing this in my current job: the stuff we sell domestically is under a lot of pressure, but the stuff we sell internationally is seeing £ revenues rise even though foreign clients are cutting spending in local currency).

We don’t *need* a slump to create supply-side efficiency – the fact that we ran with unsustainable exchange rates for 25 years means that all our export industries (both physical goods and non-i-banking services) are pretty damn efficient.

or we have a currency crisis and the spectre of all and any of this crushes the remnant of entrepreneurial activity we have left

Depends on what a ‘currency crisis’ is. We don’t have an Iceland-style currency crisis, because there’s no realistic prospect of our government defaulting on sovereign debt or failing to cover bank liabilities. We might see further devaluation, but that’ll just further improve export growth whilst raising the relative price of imports. If you’re a supply-sider, this is all good stuff.

Some of this took place in the 70s when Labour brought bouncing baby stagflation into the world (odd how this impossibility seem to have actually existed ).

Yeah, that was created by Labour, and not by the oil shocks combined with the belief among economists and politicians of the time in the Phillips Curve. That’ll be why it only happened in the UK, and not every other developed economy, then. Anyway, given that commodity prices are falling/plateauing, that global deflation is projected for 2009-10, and that nobody in charge of anything now believes there’s a real inflation/unemployment trade-off, 1970s-style stagflation seems rather unlikely.

with debt at the levels it is now the argument that we are too fiscally conservative is a hard hard one to make

Public sector debt is about 44% on the current NAO methodology; this is projected to rise to 55-60% under Darling’s plans. There’s a nice little table here comparing the UK’s position to the other developed economies: public sector debt in 2008 is 64% in Germany, 171% in Japan, 66% in the USA, 71% in the Eurozone on average, and 76% in the OECD on average. LTSB’s methodology pegs the UK at 50% for 2008, presumably because it’s treating liabilities such as NR, PFI, etc, in an internationally comparable way – but even on that basis, we’ve a hell of a lot more room for manoeuvre than anyone else.

I’m finding it hard to get the latest comparable figures for net private sector debt owed abroad (this is relevant as the worst-case banking scenario is that all bank assets are nationalised, all domestic intra-bank loans are written off, and all international loans are converted to government debt). But according to the FT, this figure for Q407 was 20% of GDP – in other words, in the absolute worst-case scenario, full nationalisation of all banking sector liabilities would take public sector debt to US/Eurozone average levels.

It’s losing the battle becuse it’s position is incoherent and contradictory. Excessive credit caused the problem, so how can the solution be reducing VAT in a vain attempt to encourage us to go and buy new TVs on credit ? Most peoples main expenditures after housing are utilities, food and clothes, which mostly won’t benefit from the VAT cut, so rather than alllowing the consumer/taxpayer to chose what to do with the money, the government are trying to micro manage individual behaviours (as usual).
People who can’t afford to buy a house borrowing above their means to get one have over inflated the housing market, causing shortages and rocketing prices. The solution is for prices to fall, and yet the government think they should try and “intervene” in this process by stopping re-posessions and attempting to force banks to lend more money, keeping house prices and the level of debt that hoes with them artificially high – why ? who benefits apart from the banks ?
Despite what the government and the BBC keep saying we are *not* in the middle of an “Unprecedented economic crisis” there have been recessions before (on average once a deade) and there will be again. They are an essential and integral part of the economic cycle, you can’t inflate an economy indefinately (unless you want an economy like Atgentina or latterly Zimbabwe) and you can’t soften the recessionary blow by spreading the debt out across a decade – we will end up with a permamantly stagnanted Japanese economy. Better to have a deep, painful, but relatively short recession to flush the shite out of the system and then start to build again afterwards.
The governemsts central problem is that they are unable to accept that some events are outside their control and that the market is the market. Unfortunately we now also have a generation of consumers and housebuyers who buy into this, even beliving the ludicrous self-referential claim that Brown was a “prudent” chancellor when he was probably the worse chancellor of the post war era.

Aaron – stand corrected, though Citibank was bigger until very recently.

Darrell – hike after hike on taxes (which will hammer people on lower incomes too) and public spending that is going to be lashed in the coming years, all based on the insanely optimistic prediction of Darling that this will only last a year.

As I’ve said above, the deficit burden isn’t big enough yet to start screaming blue murder. Comparatively, I believe the Japanese deficit was over 120% of GDP last time I looked. Their economy isn’t doing so well either but its not because of the borrowing requirement.

thomas – prudence is a bad tactic when the economy is nose-diving so badly and so quickly.

redpesto – I agree with the bit about them suddenly becoming Keynesians, but I don’t agree that they claimed there wasn’t a crisis when there was one. What crisis specifically are we talking about here?

MM – at least you’re a bit more coherent on economic policy compared to social policy
The solution is for prices to fall, and yet the government think they should try and “intervene” in this process by stopping re-posessions and attempting to force banks to lend more money, keeping house prices and the level of debt that hoes with them artificially high – why ?

I don’t have a problem with letting houses fall – the problem is the panic and over-contraction that comes with it. And the danger that we could go into a bigger recession that drags down other industries with it, that is the problem.

No-one else suffered oil “shocks then?” …I recall being the sick man of Europe and generally speaking it was ascribed to our outmoded Labour practices . Bugger all chance of Callaghan sorting that out as there is bugger all chance of Brown sorting out the swollen unionised public sector that pay for Labour now. Back to the 70s we go then lumbered with a fat unionised social worker /bureaucrat on our collective back.
I appreciate 50% debt 2008 which I think is not unreasonable for current debt levels and obviously far far too high . 80% of trade is internal so you over emphasise exports .It is a profound mistake to imagine that because another country ( like Japan) can continue in fiscal sub marine mode so can we. ( you presumably know this really )..which leads me to a run on the pound . I think you will find that the exporting bonanza we enjoy in our slide back into the medieval period is greeted with less rejoicing than you imagine. What do you imagine interest rates would look like, Perhaps you remember the little squawl we had on that score.

The thing is this whole discussion is framed in lie anyway. Practically all the additional borrowing is caused by the slow down not a remedy for it .

( Suprised Sunny hasn`t censored me actually ..soon will)

[troll]
I frequently get the feeling this government would have trouble selling a Che Guevara t-shirt to a socialist, given how badly it is at communicating anything.

I know Tim Ireland has taken out a career handing out free sheets, but the Govt. to move into t-shirt sales – that’s ridiculous. Communication is always a two-way thing, have you never noticed? Heaven help you on Question Time, you are in for a severe mauling …

Redpesto:

“…because this is just more of the same from the 1980s? The Tories seem to want to cut taxes because…well…they just want to cut taxes – it’s just that this time there’s no North Sea Oil or sufficient numbers of unemployed scapegoats to make the sums add up.”

Thats a tad simplistic.

The right want to cut taxes because they see the individual, exercising choice in the market as the most efficient means of distributing resources. Small government, low taxes, money spent with large and diverse private sector, which provides employment and goods/services. Everyone happy.

Plus points: Markets are efficient, responsive and flexible enough to meet diverse individual needs. Individuals are economically and socially empowered, social mobility.
Minus Points. Markets fail, even highly efficient ones don’t provide full employment. Merit goods are often unattractive to private sector investment. Low taxes means public services deteriorate.

By contrast: The left want to keep taxes high because they see the state as the best means of resource distribution. Big taxes, big government providing significant employment and spending big tax pounds in the (often subsidised) private sector creating jobs and goods/services. Everyone happy.

Plus points: Potential for full employment, high investment in merit goods, infrastructure and public services well funded.
Minus Points: State too large, inflexible and remote to meet individual needs. Inefficient service delivery, the “free rider” problem, social mobility difficult, private enterprise “crowded out”, welfare dependency.

As you can see I’m sitting firmly on the fence (maybe with one foot on the right), but surely no one LIKES paying taxes, you seem to imply high taxes are not a problem ?

A quick point – people would not hoard spare cash, they’d use it to pay down debts, which is desperately necessary. If they DID decide to hoard, rather than spend, the rest, this would be an absolutely fantastic thing – the banks would notice a rise in deposit monies and would start to feel good about lending again.

The problem is liquidity – excess liquidity for a decade, not enough now. The credit markets are shut, which is posing massive problems for businesses. Focusing on propping up house prices (which need to crash) or on consumer spending (which will not recover until people have de-leveraged their personal balance sheets) is shooting at the wrong target.

If they DID decide to hoard, rather than spend, the rest, this would be an absolutely fantastic thing – the banks would notice a rise in deposit monies and would start to feel good about lending again.

Why would you put money in the bank when the government will not pay your mortgage if you do . I `d love to know how many safes have been bought lately , know a few . Lending will re-start when banks can be confident of the value of the collateral they have , thats all banks in the high street actually do and thats why lengthening the period of what is at heart a speculative bubble is not the answer.

sunny: redpesto – I agree with the bit about them suddenly becoming Keynesians, but I don’t agree that they claimed there wasn’t a crisis when there was one. What crisis specifically are we talking about here?

Let’s see…the analysis (see the Guardian’s Larry Elliott) that the UK was in the midst of an unsustainable housing and credit boom, which Brown assumed wasn’t happening until, say, Northern Rock (which now looks like the canary in the coal mine). It’s okay though; all govt’s deny there’s a problem until it becomes too obvious to face.

Matt: As you can see I’m sitting firmly on the fence (maybe with one foot on the right), but surely no one LIKES paying taxes, you seem to imply high taxes are not a problem ?

Wrong implication – not least because there is no consensus as to what would constitute ‘high’. If you’re a headbanger from the Institute of Directors, tax is too high because it’s tax; if you’re a real old school Labourite an 83% top rate was too little. (In my view Lawson cut the top rate by far too much, and New Labour have spent 20 years running away from the consequences). Still, you’re list of pros and cons was fair.

MM: Markets are efficient, r

Yeah… I can really see that working out in case of the financial sector. How many billions worth of bad loans are there on Citibank’s balance sheet again? And this was the world’s largest financial institution until recently.

Cicero – point taken.

redpesto – maybe… but its the job of the companies to manage and have oversight of their risks and bad balance-sheets. Why blame the govt for market failure?

Why is the government losing this argument?

Are they? The polling evidence suggests that they are doing better post-crisis than before. And I don’t think anyone would question that Brown is personally doing much better. The Tories don’t, as you say, have anything much sensible to say on the subject but the one thing they are saying that is probably having some resonance is that the government is starting from a poor position because they ran a deficit at the top of an economic cycle. Given that this much is perfectly true, perhaps what requires explanation is why the government isn’t doing more badly?

Sunny, the financial ‘markets’ are a centralised, unregulated effective oligopoly, and have been seen to fail. but when an economist, especially a liberal economist, talks about Markets, they’re specifically and explicitly not talking about the capitalist investment markets.

Markets work, generally, and when they fail economists can normally point to the market failure (and in may cases predicted it, say hello to Vince Cable and Paul Krugman). Markets in the sense that Matt in this case is referring to is competition, open access, the ability of the purchaser to choose the best deal/option for them.

In that way, they are, and can be seen to be, efficient. It doesn’t mean they’re ‘nice’, nor will they always provide the answer that we want.

In this case though, the markets did work. The banking sector is ossified, without any real hope of new startups breaking in without the backing of an existing financial house, and were abusing an effective oligopoly position to profiteer at the expense of the consumer and the investor. As soon as this became public (and Markets rely on information), they started to fail.

Efficiently.

The problem was lack of competition, no ease of access, and bloody awful regulation. Heh, I think I’m typing from memeory here, um, *googles* ah yeah, Nick Clegg back in February, after the crisis had started but before we knew how bad it was:

The truth is, the British banking industry is cosseted and closed. It is not truly competitive.

For years it’s been almost impossible to get a new banking licence. New banks are usually just a subsidiary of existing banks. And the Northern Rock episode has demonstrated that it’s also nearly impossible to stop being a bank.

The government and regulators are too afraid to let a bank fail. Unless we lower the barriers to market entry and market exit, we will not have a truly competitive banking industry that can eradicate the poor service and high charges consumers currently face.

To make true competition possible without jeopardising customers, deposit protection needs to be beefed up, and widely publicised, to protect individuals’ deposits and give them confidence in the banking system. Deposit protection should be peer-funded by the banks themselves, as in the US. And then we need to look at making banking truly competitive again: allowing new entrants in more easily and allowing failure too.

(it’s about 2/3rds of the way down a long speech)

Rereading that, I’d forgotten how qualified Nick is on economic matters; IIRC, the Lib Dem treasury team is more qualified in economics than the entirety of the Conservative parliamentary party. Several junior types are more qualified than Boy George, that’s for sure.

I think you’re right about the Govt not putting the narrative where it should be though. Bloody media bias ignoring my lot (again) means they’re not getting the credit they should be really (sorry, couldn’t resist).

@MM
“rather than alllowing the consumer/taxpayer to chose what to do with the money, the government are trying to micro manage individual behaviours (as usual).”

Couldn’t agree more. But (and this is the thing that really puzzles me about the Conservatives) how can you then state that:

“The right want to cut taxes because…”

But they DON’T want to, do they. They have no policy to do so. They have no policy to cut income tax rates, and they have no policy to reduce central government spending. The Lib Dems have a policy to do both these things. Why can’t fence-sitting Tories face this uncomfortable truth? Why do you all cling to this obstinate notion that one day Call Me Dave will stop being a clueless knee-jerker and produce an actual plan? How late can you go on peddling the notion that he “can’t say anything because Labour will nick it”? Labour are incapable of even nicking any decent policy now, or they’d have nicked all of ours for the PBR.

“I appreciate 50% debt 2008 which I think is not unreasonable for current debt levels and obviously far far too high”

But how on earth are you getting from “significantly lower than all other major developed economies” to “far far too high”?

redpesto – maybe… but its the job of the companies to manage and have oversight of their risks and bad balance-sheets. Why blame the govt for market failure?

I’m sceptical about the wonders of the ‘British’ approach to business (comes of reading Will Hutton for starters), but policy-making and government decisions matter – even if that decision is ‘leave it to the market under a light touch regulatory regime’. I could find plenty of ways to blame everyone else except New Labour, but – much as I dislike and distrust the Tories and can’t ever see myself voting form them – I really am fed up of trying to find excuses while Blair, then Brown, keep p*ssing in the chips.

@ Alix

I’m not actually a conservative, but I don’t think the issue is when call me Dave will produce a plan. The tories are scared of banging on about tax cuts because they perceive (perhaps wrongly) that the great British public will associate it with a Thatherite slash and burn approach to the public sector (even though with hindsight she pretty much left the NHS and the railways alone and outsourcing/PFI hadn’t been thought of). Public will think nasty tories and vote for gordo. You know as well as I do that the tories will eventually cut taxes (the progressive ones anyway), although with the mess the economy might be in in 18 months time, it’s difficult to see where they would start.

“even though with hindsight she pretty much left the NHS and the railways alone and outsourcing/PFI hadn’t been thought of”

Oh come on – Major’s government was her ideological heir to an even greater extent than Brown/Blair, and it both devised rail privatisation and invented PFI…

(I mean, “than Brown is an ideological heir of Blair”, although it probably makes a reasonable amount of sense on the other reading too)

But how on earth are you getting from “significantly lower than all other major developed economies” to “far far too high”?

You know it is *just possible* that UK debt is indeed far far too high, even though others’ may be even higher.

Being in slightly less shit (on this metric – not on many others) than your neighbour is cold comfort!

Indeed – this idea that because our overdraft is slightly less massive than Albanias and that our banks capital reserves are 50p more than Icelands, means we will somehow be ok is a load of fallacious bx.

John B – Point taken. Even most tories will admit that Rail Privatiastion was a mess we still haven’t recovered from and that the jury is still out on PFI (Which was, by the way, “invented” by a merchant banker…….)
All I was trying to say is that by modern standards, Thatcher did not tinker with the public sector that much. The NHS has seen far more turmoil, has more private involvement, and is by some measures less efficient, albeit it with more funding, under nu lab than under the tory govts of the 80s/90s.

Re the government’s VAT stimulus,

I would have thought the part that will open people’s wallets – if any part of it does – is not the initial fall but the subsequent rise back again.

After all, ‘the more you spend, the more you saves’ works for Woolies, no?