Hopes stoked for quicker recovery from recession as GDP fall is revised for the second time
This post is sort of apt in relation to the previous one on ‘No political advertising in the UK’….the BBC has just engaged in one of its most blatant pro Labour, pro spending fluff pieces in the shape of Flanders’ Masters of Money.’
This is a long, long look at that series….it could have been longer as we haven’t seen the ‘Marx’ programme yet.
The BBC gives the nod and a wink to Keynes and Labour’s Plan B and here Flanders continues that tradition in cheerleading for Keynes as the harbinger of the bright sunny uplands whilst Hayek was presented as a vain, oddball extremist whose only fans are equally odd or extreme…Flanders says he was Thatcher’s guru of choice…. damning by association, in her opinion?
“Mrs Thatcher’s favourite economist”
Stephanie Flanders began her new series of the great economic thinkers last week….which Jeremy Warner in the Telegraph called ‘magisterial’.
It certainly had all the bells and whistles of a grand television production, travelling around the world, numerous famous talking heads and high production values with music and film clips set to stun and ‘inform’ with their piquancy.
However a cooler head might not have been so carried away and taken in by the flummery and showbiz pizzaz……if you can’t hide something the best thing to do is decorate it and that is exactly what Flanders has done. She is covering up the fact that her choice of economists is highly suspect and not a little self serving if you were someone who wanted to persuade an audience that one particular economic theory was the only one with legs.
Her choice of economists? Keynes, Hayek and Marx.
All no doubt of some stature and well known…but just how effective were they personally and why choose them?
The choice is of particular interest. As Flanders points out ‘Keynes is never more relevant’…but who to? The Labour Party….but he was consistently ignored for much of his career by politicians in the 20’s and 30’s.
What about Hayek…who is he relevant to? Well no one really……because his position was so extreme that no one, as Flanders points out at the end of that programme, is going to implement his free market policies…which makes you ask…why did Flanders choose him?
I suggest precisely because he was of the ‘right’ and extreme and so could be associated with Thatcher and therefore associate the Tories with ‘extremist, unworkable’ policies.
Marx was an inevitable choice and really I might suggest a schoolboy one, or schoolgirl. Marx failed in his every utterance and prediction. His thoughts were not even his own and were derived from a great a long line of previous thinkers and contemporaries. Influential? Certainly but not in a good way. However judging by Flanders write up of him in the Times you can’t help thinking he is ‘more relevant than ever’ to her….the programme goes out this Monday.
Three economists…all of note but were they the most influential in the last century or more?
Marx was, in the way that Hitler was an ‘influential’ figure for the Jews. Marx led to more deaths and misery in one century than has probably been seen over the course of human history.
Flanders decided not to look at Adam Smith, probably the most famous economist but perhaps he was too far in the past.
But who was the most influential economist who genuinely changed the course of economic history in the world? Milton Friedman.
Flanders continually associates Hayek with Thatcher…she repeats her assertion that Hayek ‘inspired those who built the world around us…..sewing the seeds of today’s financial crisis’ and flicks up a film of Mrs Thatcher….the clear intent to suggest Thatcher created this financial crisis we’re in now…Gordon Brown hardly gets a mention other than to be shown ‘saving the world’ in 2008.
But was Hayek that influential?
Who was Thatcher’s real ‘guru’?
“Mrs Thatcher’s favourite economist”
If as some suggest of Mrs Thatcher that …’No one can seriously dispute that she mattered – more so than any other twentieth-century politician with the exception of Winston Churchill and , perhaps, Lloyd George.’ then surely her ‘favourite economist’ must merit a mention, a whole programme to himself?
Lady Thatcher said: “Milton Friedman revived the economics of liberty when it had been all but forgotten. He was an intellectual freedom fighter. Never was there a less dismal practitioner of a dismal science.
“I shall greatly miss my old friend’s lucid wisdom and mordant humour.”
He was also the winner of a 1976 Nobel Prize.
‘Mr Friedman believed that tax-funded government spending was appropriate only to the most limited set of “public goods”, such as national defence.
Over half a century, Mr Friedman, the son of Hungarian Jewish immigrants, established himself as arguably the most influential economic thinker of his time. Over that post-war period, “Friedmanism” – the belief that changes in money supply dictate fluctuations in the economy – supplanted Keynesianism as the dominant economic philosophy of the industrial world.
“It’s hard to think of anyone who’s had more of a direct influence on social and economic policy in this generation,” Professor Allan H Meltzer of Carnegie Mellon University.’
Even Ben Bernanke admitted Friedman was right and that government intervention had caused the 1930’s collapse.
‘As Mr Friedman celebrated his 90th birthday in 2002, Ben Bernanke – then a Federal Reserve governor, now chairman of the US central bank – sought belated forgiveness for the error: “Regarding the Great Depression, you’re right,” Mr Bernanke acknowledged. “We did it. We’re very sorry.” ‘
And look….Thatcher is now a hero in China…….
‘The former British Prime Minister is now being held up as an inspiration for future leaders of the People’s Republic of China, with words attributed to the Iron Lady being used to train senior members of the Communist Party.
Professor Li Min, a lecturer at the institution, said when it came to crisis management Britain’s former prime minister was a model of behaviour.’
Not only Thatcher but also Milton Friedman, not Marx, is now a hero of the Chinese Republic:
‘On reaching retirement age in 1976, he joined Stanford University’s Hoover Institution, and from there he continued to campaign for economic freedoms worldwide. This mission took him to China months before the Tiananmen Square massacres. As one observer recalled, the young Chinese “followed Milton around like he was a god”.’
So given all that why did Flanders not have a programme on Friedman? Is it because he was both free market advocate and a supporter of government spending, when in the vital national interest? Is it because a man of such influence supports moderate spending and not the Keynesian spending like a drunken sailor theory? Was it because his policies, and Thatcher’s, stabilised the British economy and brought us into the black only for all that to be ruined by a spendthrift Gordon brown?
Keynes you could say was in fact the ultimate, über capitalist, the very essence of an irresponsible capitalism, his policies of massive borrowing and spending were government speculation, gambling, they were in effect Casino finance that gambled the future of the nation’s prosperity on the hope of future growth…and we’ve tried that already under Brown…it failed.
And yet here we have the BBC, in the shapely form of Stephanie Flanders, giving the big thumbs up to Keynes.
A feeling for her opinion can perhaps be given by a quote from another BBC favourite Lefty economist Paul Krugman(a frequent voice in the programme) eulogising Keynes book: ‘”The General Theory is nothing less than an epic journey out of intellectual darkness.’
It should also be noted that Flanders’ and the Labour Party’s economic guru went to school at Eton. Indeed their other hero, F.D. Roosevelt went to the US equivalent of Eton, Groton, he was an aristocratic Democrat.
Now it’s a curious thing that those who worship at the altar of Keynes and the New Deal should try to undermine Tory Cameron’s credibility and his ability to empathise or understand the economics of the ‘plebs’ just because he went to Eton….surely that is evidence of a good pedigree in economic thought….or maybe they know more about Keynes than they let on….lets have a look at him in action……
‘..in Spain where massive government spending on ‘white elephants’ has bankrupted the nation…..(but you know more spending will improve our situation in the UK)……
In Spain the economy is imploding, as Paul Mason relays to us:
The Spanish regions are heavily in debt. People rely on them for free health and education, but they can no longer pay their bills – and they can’t expect much help from central government, as it too struggles under a huge financial burden.
Now quite a lot of the patients are having to do something which for them is extraordinary: they are having to pay – a bit – for their medicines.
During the property boom which has now busted Spain, they were collecting some taxes – from, yes, property.
Now that source of revenue is gone, they are expecting the central government to provide them with the cash they need. But the central government is in trouble too: it cannot borrow – except at punitive rates.
The regions cannot borrow either. Valencia’s deep in debt and who does pharmacist Paula blame? She smiles bitterly. “That is a very hard question to answer,” she says.
Valencia is littered with vanity projects that tell their own story.
The airport that has never seen a single plane land. The theme park built in a place where the summer heat rises above 40C (104F). The land bought at premium prices that is now worthless.
Where massive white elephant projects went unquestioned for a decade, and where the banks that funded them, boards stuffed with appointed politicians, have now gone bust. And where if you need some insulin from the health service, you had better hope you are the first in the queue.’
OK…I mention Mason’s report on Spain because firstly it brings into stark relief what capitalism brings to the party when it is working properly, and second it highlights the fact that what brought Spain to its knees, massive building projects and government vanity projects building ‘white elephants’ that nobody could afford to buy or use, did exactly the opposite of what the Keynesians are suggesting such projects will do for our economy despite a century’s worth of historical evidence that it is cheap money and housing bubbles that break economies.
What has that to do with BBC bias…apart from the well known enthusiasm for Balls’ Plan B?
Stephanie Flanders’ first programme looked at Keynes…it was in essence an enthusiastic promotion of Keynesian theory and its ‘beneficial’ policies that will turn our economy round. Unfortunately it was also a load of old hokum missing out important information and deliberately misleading viewers at times.
The Hayek (Pronounced as in ‘High Explosive’…ie highly dangerous. Geddit?) programme was far more downbeat and gave the impression of an extremist oddball whose fans were also extremists, including of course Maggie Thatcher, another one pronounced a ‘domestic terrorist’, and who was really only interested in his own glorification and awards for his work.
Flanders as said, begins by telling us Keynes is more relevant than ever.
As Flanders went on, apart from the expected upbeat cheerleading of a Keynesian approach to running the economy, I noticed something odd….I know that the Party conference season is upon us but as she talked I realised I’d heard or read much of the same lines she spouted as coming from Ed Miliband….is she just doing the warm up act for him?
She told us that Keynes saved capitalism from the capitalists, what is Miliband’s latest line? ‘I’m going to save Capitalism from itself’.
Another phrase that kept popping up…‘we’re all in this together’…..a Tory phrase that Miliband has tried to co-opt as his own recently…and now repeatedly echoed by Flanders.
Or Miliband’s ‘We want a market economy not a market society’…….Flanders told us a Keynesian policy was to suggest ‘If we can tame capitalism we can shape our destiny.’…also an echo of his ‘predators and producers’ sound bite?
And of course Keynes is just Plan B with a moustache.
Flanders claims Keynes saved Britain from the depression. How did he do that then exactly when he was roundly ignored by all politicians in the 20’s and 30’s?
Flanders admitted in her last Stuff’n’Nonsense programme that what saved the British economy from the Depression was massive private investment in housing…not government spending…and then the war (the debts of which we only finally paid off in 2006…and only 1/10th of the value of goods we actually received was repaid…at 2% interest….and we still owe an estimated £225 billion to the US for WWI and we had rationing until the 1950’s imposed upon us).
The truth is the British government had always adopted a policy of intervention in the economy, ‘stabilisation’, who can forget the ‘Corn Laws’, and a long process of social change and laws regulating industry came into being during the 19th century….so there never was a ‘free market’ in the Hayek sense.
Both Britain and the US were spending heavily long before Keynes raised his head, and they were also trying to regulate world markets to keep things on an even keel….
‘In a world where the vast majority of nations were in debt, the US played a vital supportive role.’
So the programmes assertion that Keynes encourages us to co-operate internationally is something that has long been in operation….and is therefore not ‘Keynesian’.
Flanders in fact doesn’t dwell on Keynes in Britain in the 30’s but heads off to the US to flim flam us about the ‘New Deal’….but first she tries to scare us about the prospect of Fascism stalking the streets as throughout the programme we are told that austerity leads to Nazis marching in the streets.
Making Germany pay reparations was a mistake which led to Fascism? Not the spectre of revolutionary Marxists? Isn’t it in fact the Left who have taken to the streets in strikes and violent rampages and of course the Marxist ‘Occupy’ movement.
Unfortunately it seems that is pretty much nonsense…..the evidence is that Germany could afford to pay, and did pay…but only when it wanted to….it frequently evaded payment as a tactic to test the nerve of the Allies and what they would do to enforce the reparations. Keynes was famously opposed to Reparations….purely on economic grounds or something else?
Although Flanders told us Keynes was gay she didn’t mention this….‘The American historian Sally Marks commented that Keynes had fallen in love with Carl Melchior, a member of the German delegation, and that views on reparations “…were shaped by his passion for Carl Melchior, the German financier and reparations expert whom he met during negotiations at Spa shortly after the armistice”.
So in fact Germany was not in such a terrible position after all….and indeed kept up payments until the Wall Street Crash meant loans from the US dried up.
Flanders wheels in the big guns….Alistair Darling comes on to say we are making the same mistakes as in WWI….then Larry Elliot, Guardian economics editor….‘We are failing to learn the lessons of history.’
Flanders tells us that Germany printed money and destroyed its economy with hyper-inflation…..isn’t that what the US is doing now…..and in its way, the ECB, with its promise to buy unlimited amounts of bonds to keep the Euro afloat (all paid for by Germany)?
It is not austerity that led to Nazis in power but massive government stimulus…..and it was US President Hoover’s stimulus, in the shape of easy credit and low interest rates, to the American economy, that led to the collapse of the stock market and the depression in Europe which relied on US cash.
The Federal Reserve’s decisions, as admitted above by Ben Bernanke, were what ‘did it’, precipitated the Great Depression……
‘One of the most costly errors committed by it or any other banking system in the last 75 years.’
Germany at the time thought the Fed’s policy was corrupt.
Any echoes with today?…German politicians who think the ECB’s latest policy to save the Euro by buying sovereign debt with Euro Bonds is ‘the Devil’s work!’. It is the equivalent of printing money and the easy credit terms of the 30’s.
The USA in the 1920’s increased its money supply by massively increasing credit availability…..providing cheap credit….in other words essentially increasing government spending….‘to stimulate, protect and prosper all kinds of legitimate business’
Now where’ve we heard that before?
Hoover introduced protective tariffs and cheap credit to boost economy….doesn’t sound ‘laissez faire’ to me.
Hoover thought that even bad foreign loans that were unlikely to be repaid helped exports and created jobs…sounds very Brownian.
The result of all this, unsound loans, easy credit, was a collapse in confidence and world recession.
Now where’ve we heard that before?
Keynes verdict….The successful management of the dollar by the Federal Reserve Board from 1922 to 28 was a triumph!
Hayek……‘The crash indicated the risks of ill informed meddling.’
Flanders still backs Keynes and Plan B:
‘Keynes understood that imposing too much austerity is self defeating’.
Straight from the Ed Balls’ book of wit and wisdom.
I like that turn of phrase…‘Keynes understood’……not ‘Keynes said’…..saying he ‘understood’ suggests that such an idea is obviously correct…and clever Keynes understood that…which George Osborne does not. Just another Flanders dig at Austerity.
Flanders continues the rewriting of history with an apologia for Brown’s ‘mistakes’…… Brown made mistakes in not recognising the uncertainty of the economy which lead to his overconfidence, but it was a mistake that Keynes made himself….and therefore if the Great Man can make such a mistake it’s OK for Brown to do so.
Flanders continues her pro-intervention narrative saying Keynes recognised that an economy that sank may not come back up and therefore needed government help….
Recovery is blocked by lack of business and consumer confidence and therefore they do not invest in, produce or buy goods…..You cannot just wait for things to get better…..the government must create the atmosphere that engenders confidence.
That seems to completely forget ‘Business’ itself, as if it were just an adjunct to government policy….and that it was private money that built the houses that kick started the economy in the 30’s….and it is only exports that will bring in growth to our economy now…or wage cuts or a great rise in productivity….nothing government can do will boost genuine growth….she also fails to highlight the new industry and businesses springing up in the 30’s…..J.B. Priestley in ‘English Journey’ mentions them….the gleaming, chrome and glass covered new factories making England look more like California than England.
Then it’s over to America where she deploys her smoke and mirrors…1 million mirrors to be exact….in a ‘vast Keynesian experiment in the Arizona desert’ building the world’s biggest solar power plant.
Isn’t that just a massive make work scheme…paying ‘dole’ money but at a vastly increased rate…..employment paid for on printed or borrowed money?
Extra government spending would produce higher tax revenues we are confidently told…but never how that would happen.
She states that Hoover was all about spending cuts and tax rises…she claims ‘we have heard this argument recently’…..clearly meaning the Tories…giving it negative connotations.
Was Hoover a fan of Hayek’s free market?
‘Under Hoover federal spending rose in an attempt to stimulate job creation but the federal budget, a mere 4 per cent of GNP, was too small to make a significant impact in the face of such a major contraction. In 1932 he supported the creation of the Reconstruction Finance Corporation believing that this body could give essential support to the stricken banking system.
During the presidential election campaign of 1932, Hoover was attacked by Roosevelt not for inactivity but for failing to balance the budget and for being too interventionist. Both Hoover and Roosevelt argued for economy in government.’
What Hayek thought was that the economy was far too big and complicated for anyone to understand…and therefore shouldn’t be meddled with as your actions will produce unknown and unintended consequences that could be worse than those you were trying to prevent.
Gordon Brown should have listened to Hayek as he has admitted…he had not understood the complexity of the world economy and the effects of globalisation….strange you might think for an economic expert when history relates quite clearly that even in the 30’s globalisation and the interconnectedness of economies could bring disaster, when one collapsed…others would follow…as with the US leading Europe into recession.
Brown was not the ‘genius’ some suggest….his world was more one where economic policies were shaped for political purposes. Which is why we are where we are.
As now it seems Roosevelt had the support of the Media, approval of academia, patronage of intellectuals and historical orthodoxy. Hoover gets a ‘bad press’.
Roosevelt, Flanders tells us, had a different approach…the Keynesian way, to spend his way out of trouble…‘echoing arguments we hear today’…that is ‘Plan B’… cue clip of Roosevelt in dynamic mode….‘action is what we want, action now!’
She says that was no time for a government to sit on its hands (relevant today she thinks…no good Osborne sitting it out?)…something had to be done…by government…..and in response Roosevelt created the New Deal…except he didn’t… Hoover did….and unemployment in the US never dropped below 15% throughout the 30’s.
Roosevelt merely carried on and expanded Hoover’s policies….the New Deal was just a continuation of Hoover’s policy….Walter Lippman said….‘the measures are a continuous evolution of the Hoover measures’.
Flanders tells another big porky in her enthusiasm to big up Roosevelt…..saying…‘A celebrated example of how to boost an economy…no more iconic example than the Hoover Dam.’ and claiming it was Roosevelt’s project…the clue is in the name…The Hoover Dam!
We were then told that the Hoover Dam cost $161 million but produced billions in economic growth…Keynes’ ‘multiplier effect’…..really? And where were the facts and figures for that?
What was the biggest ‘lie’ told by Flanders? It was a lie by omission ….she failed to mention that Roosevelt’s ‘New Deal’ brought the US economy to its knees in 1937/38. A massive fall in GDP and employment that would have crippled the US for years had not the Second World War intervened.
Flanders likes WWII…it is an example of State management of the economy by planning, a command economy, that she likes to showcase as a pointer towards how economies could be run…no doubt in 5 year blocks.
This is highly misleading….because she doesn’t lay out just what it cost the US to pay off that war and how they did that…nor that unlike this financial crisis, WWII was a finite occurrence…once it was over the spending on massive armies and munitions and supplies could stop and then a payment scheme worked out…the financial crisis is on going and continuous….all the welfare systems and government responsibilities still need to be paid for…the NHS, schools, army, police, emergency services, local and civil government etc. The only real choice is to cut the spending on these or borrow more…which is the argument now. Keynes and Flanders would borrow more.
How did the US pay off its huge war costs? It of course introduced price controls, rationing and massive tax rises as well as a stealth tax in the shape of war bonds…the value of which fell when they came to be redeemed. It’s economic growth after the war was also huge and far outstripped the debt….but that is not going to happen here Keynes or no Keynes.
We were then treated to a talking head saying…..‘Austerity leads to unemployment going up, endless amount of suffering and the economy will sink’….cue judicious use of film clip….Cameron speaking…people slumped looking very bored…Brown looking and dynamic saving the world.
Flanders trips over to Germany to suggest that the way out of the recession is to boost domestic consumer spending and cut exports…now any fool knows that won’t work….look even Gordon Brown knew that was tosh:
‘It is essential that consumer spending is underpinned by investment and industrial growth. Britain cannot afford a recurrence of the all too familiar pattern of previous recoveries: accelerating consumer spending and borrowing side by side with skills shortages, capacity constraints, increased imports and rising inflation.
Already there are warning signs that this pattern could be repeated. In similar circumstances some of my predecessors have ignored these signs while others have deluded themselves into believing that growth, however unbalanced, was evidence of their success. I will not ignore the warning signs and I will not repeat past mistakes.’
The only way out is growth from manufacturing of products, ideas or services……this provides the money that then goes to fund domestic consumption…you have to earn the money to spend it.
Eventually Flanders’ comes clean……sort of…..admitting ‘Keynes’ didn’t work….(and who took over….Milton Friedman…not Hayek)
‘Keynes’ may not have worked because…there was enough spending…or….there was already too much debt so you don’t want to pile more on.
However apparently ‘Keynes has an extraordinary legacy that changed lives of billions around the globe.’
She asks ‘What can Keynes do for us now?’ Cue more film of a factory kept open by government money…. ‘Government intervention can keep factory gates open and increase employment.’
And of course the final seal of approval for Keynes…..‘Failure to adopt his policies leads to regional war as inequalities grow.’
Oh and one last thing….you have all heard of the Banks that were too big to fail that caused the credit crunch? well in the 30’s the banks were ‘too small to fail’…..so St Vince’s prescription is a little uneducated and suspect….
‘Why was the banking system so vulnerable and what role did this vulnerability play in intensifying the depression?
There are a number of factors that need to be taken into account in an analysis of US banking. The structure of the system is important. Many states favoured unit banking so the US had a large number of very small independent banks most serving rural communities. These small banks were undercapitalised and 11
highly vulnerable. Indeed, during the prosperous 1920s about 5,000 of them failed. Most could not satisfy the minimum capital requirements for membership of the Federal Reserve but there was strong emotional attachment to unit banking in a country which still had half of its population residing in rural settlements. The extent of unit banking was a serious structural weakness.’
Too small to fail.