The Return Of Boom And Bust

The interview that Alistair Darling gave to the Guardian on Saturday was interesting. He said the economy was at its worst point in 60 years. Libby Purves wonders why he chose 1948 -- the year of the nationalisation of the railways, the creation of the NHS, and an Olympics in London.

I think Darling, if shuffled away from the Treasury, might have enough backbone to do something damaging to Brown, like resign from the Cabinet.

Stephen King (the managing director of economics at HSBC) says that the real surprise of the past year is not the credit crunch, it's the inflation. House prices were inflated, and there were 5 times income, 100% mortgages on offer. But, King says that policymakers are "struggling" to deal with inflation since "its arrival was so unexpected." That's economist for "we don't exactly know what's happening either."

John Redwood has an interesting blog:

"Mr Darling has demolished the more important half of the New Labour offer, the promise of economic stability and efficiency. “No more boom and bust” was the most effective of all the New Labour songs."

"The soundbite worked brilliantly in 1997, as part of the reason for change. What change did people most want? 'No more boom and bust'."

"It worked well again in 2001. After all, leaving aside the disgraceful tax raid on the pension funds and the sale of the gold holdings, most of the period 1997-2001 was characterised by prudent management of public finances and produced a reasonable economic performance. Labour still allowed boom and bust in manufacturing, but that was disguised by the strength of services in general and London’s service sector in particular which helped the national figures considerably."

"By 2005 it should have been apparent to more commentators that we were back in boom and bust, but because we were enjoying the boom part of the policy, too many people were still prepared to ignore the obvious signs. I highlighted the excess and waste in public spending, the build up of far too much public borrowing, and the change in inflation targets to keep interest rates lower than desirable. I also highlighted wrong headed mortgage regulation and the Basel I banking regulations, which became an important part of the disaster."

"Mr Darling has told us it cannot work again. In Mr Darling’s words we have lurched from pretty good economic conditions to the “worst in 60 years” ... It transforms British politics. It now allows us a more honest debate about what went wrong and what needs to be done to put it right ... It will anyway confirm the public view that New Labour is dead – it has delivered neither economic efficiency nor social justice."