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And Ritchie weighs in


The graphs show three things. The first is that in interest terms Labour delivered new low levels of interest cost until US banks collapsed.

Second, they show that public sector net debt was also at a low rates under Labour until US banks collapsed.

And, third, that public sector net borrowing was especially low, and better under Labour than under the 1979 to 1997 era.

In other words, Labour could not have in any way caused a crash by overspending because, quite simply, it did not do so.

And what the fuck were they doing running a budget deficit at the peak of the longest modern times boom?

That, of course, added to aggregate demand at that peak of that boom. Meaning that when the bust came, as it was always going to (yes, free market capitalism is prone to boom and bust) we were even more fucked than if the boom had been tempered, as standard Keynesianism says it should be, with a bit of fiscal austerity during that boom.

That’s the overspending story: that they were spending the shit out of the economy when they shouldn’t have been.

19 thoughts on “And Ritchie weighs in”

  1. It is true that even truly private markets can develop mad enthusiasms–say the Dutch Tulip boom — which can end up going sour but most boom and bust happens in markets/societies being fucked over by the state in ways large and small.

  2. And every fucking lefty moron with a CSE is economics, will deny what you say Tim and never acknowledge what they did.

    Your point about Keynes-ism is also very important. Any lefty that advocates it as an excuse for spending called be called out as a bullshitter as they never want the saving part, just the spending part.

  3. I have in the back of my head the fact that at the peak of the property fuelled boom in the mid 00s that consumer spending was far in excess of income, for multiple years, as everyone just maxed out credit cards, juggled the interest free periods, and then remortgaged the house to pay it all off when it got too much. Effectively adding the increase in their house price to their available income. This seemed to me to be a recipe for disaster for both the individual concerned, and the economy as a whole. Did our Lords and Masters think such behaviour could continue ad infinitum?

  4. Gordon Brown and his doctor, 2008:

    Doc: “I’m afraid you have chronic cirhossis, Mr Brown”
    GB: “Och, it’s nae problem, Today I’ve joined the Kirkcaldy Temperance Union, I’ll be fine.”

  5. Has any ‘neoliberal’ actually ever said that the crash was caused by government overspending? I thought that the argument was that the Labour governments behaviour left us vunerable to that bank crash?

    As I understand it the government part in the crash goes back to the 90s with Clinton and other do gooders coercing banks into lending to people who couldn’t afford it because RACIST.

  6. The graphs tell a story quite at variance with his interpretation.

    In each case, Labour inherited a reasonably good position which it failed to sustain.

    Nice narrative, shame about the facts.

  7. “And, third, that public sector net borrowing was especially low, and better under Labour than under the 1979 to 1997 era.”

    Better? From 1979 onward public sector net borrowing reduced as nationalised industries were privatised, until it reached a low point in 1990. Needless to say, under Labour it was never as low as in 1990.

  8. The denonimator is important too. Nominal GDP actually fell in 2008-2009, so any figure which is a % of GDP will automatically look worse.

  9. Chris Dillow has argued that the government had to borrow because in aggregate everyone else was saving (businesses and foreigners mainly). And had they borrowed less, interest rates would presumably have been higher, leading to more of a boom.

    Apologies if I’m misquoting/misunderstanding the great man.

  10. “until US banks collapsed”

    A false characterization. There were only two major US bank failures in 2008, IndyMac and Washington Mutual.

    I also find it hard to accept that the UK economy is hard wired to US banking. US bank closures are external events.

  11. The actual issue was the collapse in confidence in the pricing and risk measures that people were using (which were fairly similar between UK and US banks).

    Which lead to a collapse in the market for mortgage-backed securities. Which did affect some UK banks.

    Which led to lots of bad publicity, a run on Northern Rock (and, to a lesser extent, the Dunfermline Building Society) because of their exposure to putatively (now) risky mortgages (although I hazard that few UK mortgages were as risky as some of the US ones) and a consequent severe restriction in inter-bank lending as everybody raised the drawbridges and started to panic about the rats in the castle.

    Which led to lots of trouble for those banks who were severely to moderately over-extended.

    Yes – actual US bank _closures_ were largely irrelevant.

  12. And the collapse in confidence was caused by the affected banks not knowing what their liabilities were, risk management being simply too uncool.

    Intrabank lending, on which NR was heavily dependant, froze up.

    NR thus ran out of money.

  13. Jack C – exactly. NR were borrowing short and lending long.

    And no one from the FSA ever got NR to effectively plan for a situation where the short term money market dried up.

    IT’s really a manifestation of the extreme uselessness of the FSA and why Brown removing those responsibilities from the BoE ultimately led to the banking crash. Note we haven’t even touched on the lunatic actions of the arseholes running RBS.

  14. Worse, no one, in Brown’s bright new system, knew quite who was responsible for what, or where the buck eventually stopped.

    To be fair to NR, their model depended on banks being able to trust themselves and each other. They would also have expected the regulators and the Treasury to move much more quickly and less cack-handedly when a problem did arise.

    Okay, their model made them vulnerable and took insufficient account of “Too good to be true = Not true”.

    However, NR may have felt entitled to believe that the major banks were run on at least semi-competent lines.

  15. I’ve discussed this directly with Matt Ridley. And he, for one, is shocked that NR couldn’t get BoE support when the interbank markets dried up.

    Whether he should be is another matter. But he thought those Granite bonds were good (they were), that the mortgages they were waiting to put into them were good (they turned out to be) so why weren’t they able to access liquidity?

    Yes, OK, source and all that: NR absolutely was illiquid but insolvent? I’m not sure and Ridley is adamant they weren’t.

  16. The delay between the first rumbles and the catastrophe was ridiculous.

    Mervyn King was focused on moral hazard, and was also concerned that action might break EU law. He had a point, but still.

    The moral of the story is that selling mortgages in a competitive market is a way to safe but dull returns, requiring safe but dull management. You can’t reinvent the wheel, and you can’t get rich quick.

    Up until at least the 80’s retail banking was rightly seen as boring, with Senior Management being for the solid and dependable (and rather boring).

    References in culture are telling. At some point the stereotypical banker binned his golf clubs, cancelled his night out at the Rotary and started hoovering up cocaine from pendulous breasts. No wonder the box-ticking suffered.

  17. Er…

    The axes on the top and bottom graphs go from 1955-t6 to 2015-16.

    The axis on the middle graph goes from 1974-75 to 2019-20.

    Is there any justification for this? or is this pure cherry-picking?

    And does asking these questions make me a neoliberal troll?

  18. @ Tim
    NR had net assets somewhere north of £2 billion.
    Insolvent? No way!
    Badly managed? Yes and Ridley deserves someblame for not sacking a greedy and duplicitous CEO. But the BoE was in breach of its statutory duties.

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