Dave and George, ably assisted by Mervyn, have cooked up a great scheme: they’ll pump £140 billion into our banks on condition that about 60 percent of the money will then be used for mortgage and business loans.
The amount is positively mean compared to the £325 billion already injected into the banks to keep them from a richly deserved demise. That programme achieved its dubious purpose in that most banks do indeed continue trading even as we speak. What they don’t continue is lending, opting instead to use the money as chips in the computer games banks play with one another. Such newly found frugality has two obvious effects, one bad, the other good.
Since the money is being used merely as a life-support system for the banks, it circulates within their bodies only, doing nothing to drip-feed financial plasma into the veins of the economy. The economy then becomes exsanguinated, leaving our private finances anaemic and moribund. That’s bad – and this is the situation we have at the moment.
On the other hand, if all those billions, trillions and zillions were dumped into general circulation, we’d have not so much an economic Eden as inflation from hell. And inflation, as anyone familiar with the history of the Weimar Republic will tell you, spells disasters of all sorts, not just in the economy. Thus tucking the money under the banks’ mattresses at least keeps inflation down. That’s good – but it won’t last if the banks are forced to release the funds into the economy, as sooner or later they will be.
If we strip the Exchequer’s proposal of the usual PR effluvia, we’ll see that in essence they’ve reversed the long-standing policy of preferring recession to inflation. This goes to show yet again that, when it comes to the economy, the government can only ever give us the choice between a rock and a hard place. Occasionally both. Never neither.
Simple homespun logic would suggest that, if governments are constantly damned if they do and damned if they don’t, perhaps they – and, more important, we – would be better off if they stayed out of the economy altogether. One shouldn’t play if one can’t win seems to be the conclusion, but I find this so shocking that I have to seek outside help.
Hence I’ve interviewed a few experts (identified by their initials only), trying to find out what they think. Here’s what they said in response.
What do you think of the active role our government likes to play in the economy?
EB: The moment that government appears at market, the principles of the market will be subverted.
But surely making it easier for people and small businesses to borrow will stimulate the economy?
AL: You cannot establish sound security on borrowed money.
Yes, the events of 2008 seem to bear this out. But we’re in big trouble now, and some excess spending will offer an immediate solution, won’t it?
AL: You cannot keep out of trouble by spending more than you earn.
Well, every good housewife could tell you that. But aren’t governments run on different principles?
AS: What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.
In that case, let’s extend the parallel. By definition, all family members are economically equal. Shouldn’t we try to achieve the same conditions in society at large, by taxing the rich more?
AL: You cannot help the poor by destroying the rich.
EB: Compulsory equalisations can only mean equal want, equal wretchedness, equal beggary.
It sounds to me as if you’re advocating less government interference, not more. But can individuals be trusted with their own economic well-being?
AS. Every individual can judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would assume an authority which could safely be trusted to no council or state, and which nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
But doesn’t this individualism border on selfishness, naked pursuit of self-interest?
AS. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-love.
At that point there was nothing left for me to do but thank Messrs Edmund Burke, Adam Smith and Abraham Lincoln for their time. Their views, I thought, have antiquarian value, but no other. One can only shudder to think of the kind of havoc they’d wreak on Western economies if given the chance.
We’re so much better off with Dave and George, especially now that they have Mervyn King on their side. Count your blessings – but please, please don’t count your money. You’d only get depressed.