The permanent secretary to the Treasury, Sir Nicholas Macpherson, has argued that the 2008 financial crisis was “a banking crisis pure and simple”, contradicting Conservative claims that it was caused by Labour overspending.
His remarks emerged after Ed Miliband came under pressure on the leader’s Question Time on BBC1 on Thursday, facing accusations that Labour government had overspent, a view strengthened by the now notorious letter left by the former Treasury chief secretary Liam Byrne to his successor in 2010 that there was “no money left”.
In a largely challenging review of Mr Osborne’s Economic Experiment, a book by the Observer economics columnist William Keegan, Macpherson wrote in March before the campaign started: “Some of Keegan’s book resonates. The 2008 crisis was a banking crisis pure and simple. Excessive risk had built up in the system; the regulators failed to appreciate the scale of that risk or to address it.
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“As he puts it, it was ‘a failure of the Group of Seven economic policymaking establishment’, myself included. Inevitably, countries with bigger banking sectors, notably the UK, were worse affected.”
Miliband has always insisted that the banking crisis caused the deficit, not the other way round, but admits that the last Labour government did not do enough to reform the banks.
That the crash was caused by overspending. I would claim that the economy was fucked by overspending but that’s a different matter. It coming in two flavours:
1) Brown wanted to increase the portion of GDP that flowed through the State. This was a bad idea.
2) Someo0ne, somewhere, should have had at least an inkling of Keynesian economics. That when you’re in the longest peacetime boom of modern times that’s about the time to be cutting back on spending growth? Not even to pay down debt, but just to stop feeding yet ever more demand into a frenzied economy?