Ten Years After the Northern Rock Crisis: and the Economy is in a Worse Condition

We are now ten years away from the date when a still-under-rated minister, Alastair Darling, took the decisive steps that 'rescued' Northern Rock; and, with it, the economy. I referred yesterday to the fact that some five years after the crash a few students in the University of Manchester dared to challenge the fact that their teachers in Economics classes could not explain [within their own intellectual universe] how the crisis happened, precisely what constituted the crisis, and why they had not adjusted their 'analysis' of the economy in the light of a shattering, cataclysmic event. A second set of questions, soon to be posed and left unanswered, was how and why all these clever professors had not seen the disaster approaching.

Off her own bat, the Queen posed the same question on a visit to the London School of Economics, and received no immediate response. A few weeks later a group of professors sent her a totally unsatisfactory sequence of exculpatory piffle, which satisfied no-one. The Queen later put the same question on a visit to the Bank of England; and because they had no answer to the challenge why they had not anticipated the crisis - and thus been able to avert it, or mininise it - they could not give any sort of satisfactory response.

The Econocracy, the Manchester students' term to describe the wrong-headed devotees of free-market Economics, cannot formulate an answer within their terms of reference: I have frequently damned them in this blog, and set them aside again today as being potentially part of a solution to the mess that their dogma created when it was embraced as deep state policy by the Thatcher gang. To anybody who questions the use of the term 'gang' I respond that the tight group of people who advised Mrs Thatcher and her guru Keith Joseph, several of whom were ex-communists, intended their ideologically-driven policies utterly to destroy the mixed economy no less completely than the Bolsheviks had planned to destroy capitalism.

I have perhaps not stated this point strongly enough in this blog so far. It lies at the root cause of the crisis of 2007-9, and thus it still overshadows the British economy, and damns millions of people to diminishing real incomes as they drag out their days on minimum wages in jobs with barely measurable productivity and negative productiveness. Behind the relatively few specific policies that are still recognised as having been 'Thatcherite' [such as selling council houses] there lay a serious ideology which informed the 'deep policy' that lay behind everything that they did. This dogma is the unconditional belief that 'free markets' release the inventiveness of the brightest and best of the rising entrepreneurial cohort: and that their spontaneous actions would give sufficient positive momentum to the economy that hundreds of thousands of redundancies and billions of poundsworth of plant and equipment that were scrapped [or just left underground] could simply be ignored. If you believed this fervently enough, no specific policy and no government investment would be needed to free self-centred components of the economy to expand at an unprecedented rate.

Of course, this ideology comes up against a mass of real-world inhibitions: laws against defrauding or cheating fellow-citizens, laws controlling dangerous substances, the requirements of national defence, the absolute belief of the public that there must be a national health service, the entrenched tradition that children should attend school, and many more. While telecommunications, gas, water and electricity supply were privatised quickly, many areas of the economy could not directly be attacked in the first wave of Thatcherism. Meanwhile the flow of taxation and government spending had to be maintained to keep the publicly-recognised essentials in being; though plans could be made to privatise hospitals and schools; and other public services were required to cut their real cost to the state. The government made a virtue of shutting down the most heavily-invested material industries [where the state had been the prime investor for decades: in some cases for centuries] such as shipbuilding, iron and steel, shipyards and coal mines, regardless of the damage that was done to the economy.

Much of the material economy went into a state of shock, as protections against competing imports were removed and supply chains from foreign countries had to be accessed because British suppliers had disappeared. When the mines and shipyards and steelworks closed, their suppliers were ruined also, and many supply-chain firms failed; which meant that across much of industry there arose   a need to import components that had previously come from the British firms whose major customers had been taken out in accordance with the prevailing ideology.

The one area where buccaneering entrepreneurs could thrive was in banking and finance, where many controls were removed precisely at the time when the emergence of sophisticated computers became available to firms; while the regulators [most notably the Bank of England] did not develop the means to understand what was happening. That was the fruitful field on which the the crisis, to be recognised by ministers in 2007, was developed over twenty years from 1986.

[Next installment tomorrow]

Implausible and Impossible Prime Ministers

It remains unfashionable, especially in Tory circles, to suggest that the financial crash of 2007-8 was an inevitable outcome of 'Thatcherism'; but it was. It is obvious, in all but tightly Tory circles, to recognise the Grenfell Tower disaster as an outcome of 'Thatcherism'. The stubborn stupidity of the leader of Kensington and Chelsea Council is typical of the Thatcherite brood, three generations on from the real thing.

The parenthetic use of the lady's name is to emphasise that, in my view, she did not know what she was doing. Thanks to Sir Keith Joseph she was one of the first politicians to be introduced to the ideas that were just becoming significant in Economics. This was in the middle nineteen-seventies, when she became leader of the Conservative party amid the chaos that followed the bizarre misapplication of Keynes's theories by the self-styled 'Neo-Keynesians' who set up the inflationary chaos that make the economy unmanageable and the state virtually ungovernable by 1975. The new theory of 'rational markets' that has now become the impenetrable dogma of the Econocracy [as explained in earlier blogs] was the intellectual justification for the rush to deregulation, denationalisation and diminution of government which became central to her politics. That there was a powerful and developing academic community supporting her actions was enough for the Iron Lady, who was not herself an intellectual giant. She had tremendous qualities of drive, determination and sheer willpower, which she imposed on a largely-uncomprehending and spectacularly supine Cabinet.

Deregulation and cheeseparing in government, assisted by a cynical recognition among people like many of the Tories of Kensington that the largely-migrant population of the tower blocks were not keen to attract the interest of the authorities, are the direct causes of the Grenfell tragedy. Thus it can be seen as a direct outcome of the Thatcherite implementation of the daft dogma that also gave us the crash and the systematic weakening of the bonds of British society through the implementation of Osbornian 'austerity' in combination with the mania for 'deregulation' and cheapness in public services and amenities.

This disaster has come on Mrs May's watch, and her failure to comprehend it has been seen by the entire nation. The at-least-equally comprehensive failure by the Borough Council has been less prominently noticed by the media because of the ability to blame the government, and - above all - its head. Even if Mrs May displayed any comprehension of the risks that attach to Brexit, her failure for several days to face up to the Grenfell Tower situation has shown her unfit for office. As this tragedy has even driven the Brexit talks off the front pages for several days it has made it ever more inevitable that the intellectual and empathic resources in Downing Street are not up to scratch.

So now the search is on for a new Prime Minister. In Tory minds, it has to be a Tory: the party dare not face an election. Boris, as the papers say in setting him aside as 'too risky', "is Boris". Philip Hammond, a dull fish if ever there was one, seems to be emerging as the favourite; but he could turn out OK.

Anthony Eden was seen as a golden boy in the nineteen-thirties, and was Conservative 'heir apparent' to Churchill from 1940 for over a dozen years before he finally became a disastrous Prime Minister who was carted off to the Caribbean after a 'breakdown'. The Earl of Home was almost competent, when the nation faced  Macmillan's choice of a successor. John Major was constantly harassed; but he won a general election convincingly and was later chosen chosen by the royal family to serve as Trustee for the inheritance of Princess Diana's sons: probably the biggest vote of confidence a Prime Minister can get. Major was a success; May is a failure.For four decades Thatcher been seen [at least, on her own side] as a success: how bizarre is that? We are just beginning to realise.

So whether the Tories next opt for Hammond or Gove or Rudd or Johnson [or any of the others who are mentioned in today's papers], the fitness of that person for the office will only become apparent in the event.