Anatole Kaletsky is usually good value for his economic analysis. In a pretty scathing column today about the collapse of Brown’s political reputation since becoming Prime Minister last year, Kaletsky tries to contrast Brown the bumbling PM with Brown the masterful Chancellor of the Exchequer. He writes:
Indeed, he was probably the most successful chancellor in modern history, notwithstanding his muddled tax reforms, his badly timed gold sales and the fatal damage he allowed the regulators and courts to inflict on Britain’s pension funds. Mr Brown made the right decisions on monetary policy and the Bank of England. He kept Britain out of the euro. He reduced capital gains and corporation tax more radically than any Tory chancellor and he resisted populist demands to squeeze the rich.
Oh please. Sorry to rain on the parade here, but remember that in the early part of the current decade, Brown subtly shifted the way in which the BoE measures inflation. Without going into a lot of technical detail, he allowed the central bank to pursue a less stringent inflation target, and allowed it to loosen the strings of monetary policy. We are now – arguably – suffering some of the effects. Also – and it is frankly incredible that Kaletsky does not mention this – Brown has presided over a massive increase in the size of public spending and borrowing. During the supposedly fat years, the state of the public finances has actually got worse when it should have done the opposite. Hardly the mark of a good, prudent finance minister. The public sector payroll – no doubt expected to vote Labour – has swollen by up to 1 million since 1997, according to some estimates. That is a collossal increase and a large dead weight on the economy. Again, this burden is weighing more heavily on the economy now that the international environment has become more difficult.
By doing the British economy no serious harm during his long tenure at the Treasury, Mr Brown earned a distinction unique among postwar chancellors, with the possible exception of Kenneth Clarke.
Well, compared to some of the massive errors made by previous Labour and Tory chancellors, it is true that Brown’s record has been quite reasonable, but Kaletsky ignores the substantial shift in the size and cost of government since becoming Chancellor; that amounts to “serious harm” and detracts badly from his record.
Do not misunderstand me. It is not necessary to believe that every move made by Brown has been bad and it is also important to realise that in the globalised financial markets of today, there is only so much – thank goodness – that a finance minister can do. But as we have seen from the continued flight of entrepreneurs and businesses from Britain, from the tax increases, from the poor productivity gains in the UK, and so forth, Brown has been a mediocre custodian of the economy at best. And even his prize achievement, the independent Bank of England, looks less impressive now after the BoE was unable to act swiftly, as it could in the past, over the Northern Rock fiasco.
I assumed, as I read the piece this morning, that Kaletsky meant “successful ” in the political sense – of getting his party re-elected. That is how I read the meaning of this comment. In political terms, he was successful because Labour kept getting elected. Anyway, just my take on it.
Surely a ‘good’ Chancellor is one who bleeds the Nation white without receiving, at the time, overmuch complaint.
Best regards
Great post, Mr Pearce. More please.
BTW, was wondering what you thought of Edmund Conway’s related piece in the Torygraph, this morning?
I have to disagree vehemently – he was a lot worse than mediocre, he was utterly mendacious.
His actions on undermining private pension schemes (to raise funds for cushy public-sector final salary pensions), his selling off of gold reserves, the appalling charade over 3G licensing (which pretty much gutted mobile comms development in the UK)… I could go on. And on. And on.
ThePresentOccupier: he was “mediocre” in relative terms. Compare him to Tony Barber, who sparked hyperinflation in the early 1970s, or the various Labour chancellors in the 70s, or Stafford Cripps, etc. No, Brown was unquestionably bad news, but he got some things right.
I may be wrong but I vaguely recall that even the decision to make BoE independent was driven from elsewhere (EU?) he simply did not stop it … I am willing to concede that I may have it wrong, but then again …
Mea culpa. I seem to have set the bar too high on what I expect of mediocrity
@The PresentOccupier
re3G: my understanding is that the Treasury/Brown instructed Ken Binmore to extract as much money as possible from the bidding process.
Binmore (probably the world’s most able applied game theorist) designed a bidding system which encouraged total meltdown but only because all the bidders were convinced that to fail to get a licence was commercial suicide. Not one of them calculated that if they stood back when the price got too high then they could buy one of their competitors for peanuts and acquire their licence at the same time.
How this fits into an assessment of Brown’s mediocrity is not clear to me, but we must allow for the mind-boggling mediocrity of the senior management of the comms companies.
While this is all true, you can hardly expect the media to say so when they have spent years reporting that Brown is an economic genius who is the reason for our present (previous?) prosperity, rather than Thatcher and Major, or the similar robustness of our trading partners. Constructing a consistent “narrative,” as they insist on referring to it is more important than telling the truth. Many of the best stories are fictional, afterall.
RE: And even his prize achievement, the independent Bank of England, looks less impressive now after the BoE was unable to act swiftly, as it could in the past, over the Northern Rock fiasco.
I fail to understand this. Is it still Brown’s fault that he ceded authority to an institution which then failed to act prudently?
Well, shouldn’t that have been a good thing? It doesn’t bode well for libertarianism if freeing them slightly from regulation automatically leads to disaster.
Good point, Ian B, I’ve never really understood how Mr Pearce’s squares his libertarian principles with his squeamishness over market cycles.
Just out of interest Mr Pearce, in your eyes has any British Chancellor ever been any good?
Ian B, Mr. Pearce can certainly respond for himself, but in my opinion there is nothing un-libertarian in demanding that the government follow a “sound money” policy. As I read his point, he was objecting to Brown’s permitting the B of E to inflate your currency to an even greater extent than had previously been deemed acceptable. Since inflation is merely governmental theft by steath (as I think most libertarians would agree), why do you criticize someone for objecting to an increase in the amount of such theft?
And why do you consider keeping a tight rein on a governmental entity (the B of E) to be inconsistent with libertarian principles? Don’t we all want less government, and whatever government there is kept within narrow bounds? Freeing such an entity from regulation is the antithesis of libertarianism; we want such entities to be tightly constrained. This is not at all the same thing as relaxing the regulation of private companies; in fact, it is precisely the opposite of it. So I think your objection is completely ill-founded.
Brown oversaw a significant increase in the country’s taxation, deficit and debt during one of the world’s most prolific economic booms.
Any way you slice it, this is has been a horrible government, and with the coming slowdown and housing collapse, the British people are going to feel the pain.
Laird, what inflation rate do you believe evidences that “sound money” policies have not been pursued?
Chip, I have no doubt you have successfully predicted fifteen of the last three recessions.
It would be nice to read some sensible ecomomic insight on this blog instead of ranting political prejudice.
Adrian, I made no assertion that any “sound money” policies were or were not being followed; I merely objected to Ian B’s critizism of Mr. Pearce’s post about a “less stringent inflation target” being pursued. “Less stringent” equals greater inflation, and whether or not the money was “sound” before that it is necessarily less so afterward. QED.
Saying that a central bank is a free market, libertarian institution because its staff of 100% government employees are now indirectly rather than directly government appointed is like saying that British Leyland has been privatised because the colour of the hub caps is now chosen by an independent hub cap colouration board rather than the Secretary of State for Trade and Industry.
If the interest rate, inflation rate, Etc. of your government-issued fiat currency is being set by bureaucrats who have a legal monopoly on the issue of money, you’re still very much in the realms of state planning – far more so than any other industry of note these days. What a surprise that it is the industry that keeps breaking down at short intervals… much like a British Leyland…
That is a silly point to make. Who says I am squeamish about market cycles? I am not denying they occur, only that politicians can make the consequences worse.
Laird, you make the answer I would have given to Ian B very well. I would also make this point, however:
I was judging Brown not by some sort of utopian benchmark of classical liberalism in which central banks that issue fiat money do not exist. I have actually written criticisms of the whole idea on this blog before. But the fact is that central banks exist, and they are unlikely to disappear very soon. So it is perfectly valid for a politician to try to entrust such an institution with the objective of maintaining price stability. One idea is to set an inflation target, another is to try to achieve a certain level of growth in the money supply. When the BoE was given the job of setting interest rates in 1997, Brown chose the retail price index as his target. Then, about three years later, he gave the BoE a target that was far easier to hit. Consequence: the BoE’s interest rates fell. Hence my criticism. It’s not exactly rocket science.
Adrian writes:
You call it “ranting political prejudice” because you disagree with it. Be a man and actually give some arguments to say, for example, why G. Brown has or has not been a good finance minister.
Nigel Lawson (up to a point); Geoffrey Howe, William Gladstone…er, that’s about it.
Wasn’t Nigel Lawson the twit who started the whole shadowing the DeutscheMark fiasco, that eventually put the Tories out of power and gave us three terms of New Labour ?
Whatever his more recent merits – he seems to be the only person in parliament trying to hold back the tide of global warming nonsense – that whole ERM nonsense should haunt him to his grave.
“His actions on undermining private pension schemes (to raise funds for cushy public-sector final salary pensions),”
Sorry, I don’t think that is right. He nicked the ACT tax rebate from private pensin schemes and spent it on current salary for public sector parasites. Their cushy pension schemes are entirely unfunded – so we will have to pay for them later, no matter who wins the next election.
“And even his prize achievement, the independent Bank of England, looks less impressive now after the BoE was unable to act swiftly, as it could in the past, over the Northern Rock fiasco.”
Sorry, but that is conflating two separate issues, the setting of short term interest rates, and banking supervision.
The independence that Brown gave the BoE early on was with respect to short term rates. I don’t think he was under any particular EU pressure to do so – they were too busy trying to force it on all the transition countries.
Northern Rock on the other hand, is an issue of banking supervision. Traditionally, this was performed by the BoE, but New Labour parcelled it off to the FSA. I think it is now sub-divided among various different bodies, though, frankly, I’ve lost track. Given the amount of buck passing over Northern Rock, I suspect they have too.
Freddy, the issues are connected. When Brown gave the job of setting rates to the BoE, he felt he had to remove the old banking supervisory role from the BoE and give it to the new regulator, the Financial Services Authority. The argument at the time was that a regulator, which also had inside knowledge of upcoming shifts in interest rates, would have conflicts of interest to worry about. It is a crap argument but one that was made at the time.
I recall that Sir Eddie George, the-then governor of the BoE, was extremely cross that the BoE had lost its regulatory function, which he felt was critical to the bank and its ability to do the job (take its role in letting Barings go down after the Nick Leeson affair, for example).
Freddy writes:
Indeed. I did not say that the public sector pension schemes that benefited from Brown’s changes to ACT were funded. I made it clear to avoid saying that. Please read my comment through again.
Mr Brown has vastly increased government welfare state spending, he has also vastly increased taxation – and made the tax system far more complicated (a cost in-its-self) and allowed the “independent” (government owned and government appointed is an odd sort of “independence”) Bank of England to pump up a vast credit money bubble.
Mr Kaletsky knows nothing about economics and should not be read when he writes about these matters.
This is not to say that Mr Kaletsky might not be an expert on some other field of human knowledge – for example he may know a great deal about painting or music.
Johnathan, my apologies; I should have specified that my comment about cushy public sector pension schemes was directed to “ThePresentOccupier at May 15, 2008 10:57 AM”
Gordon (McClown) Brown, as the UK’s Chancellor of the Excheqor (Finance Minister) was a mediocrity at best, and a ditherer at worst. As Prime Minister, he is still both, and a liar!! (allegedly) Brown should never have been promoted to cabinet rank. He should have remained an ordinary Member of Parliament, he would have been sucessful in that – maybe!!
Mr Brown and his Pseudo-Marxist Stalinist Friends has done what all British Labour administrations have done – left the UK’s public finances in a mess. The next Conservative Party administration (God Willing), will have to clear up the mess like they did back in the late 1970s after that Labour administration did likewise (left the public finances in a mess).
All Brown and the British Labour Party in government know is – Tax and Spend. Tax people as much as they can get a way with. Then spend Public monies like drunks on a crawl around the Town Bars.
They are all a waste of space, a waste of rations and no good to man nor beast!! (oxygen thieves..)