Gordon Brown’s utterance of the dread word “depression” was ‘a slip of the tongue at Prime Ministers Questions, his spokesman hastily asserted, minutes later. Another one. Less than two months ago, he “saved the world.” Picking on the Prime Minister for the odd misspeak ( an old Watergate era word) may seem like a silly game played only by political journalists, but it may also reveal the real state of his mind. Prime Minister’s words do matter and can merge into actions. Yet once potent actions are now being written off as increasingly ineffective. The latest think tank assessment from the National Institute of Economic and Social Research uses the word “slump” rather than “depression.” It pooh-poohs the impact the next interest rate cut expected tomorrow on the immediate, real problem..
“The contraction of credit meant that rate cuts by the Bank of England were now ineffective in stemming the downturn… the central bank should make more use of measures such as buying corporate bonds, the framework for which was set up last week.”
So depression or not? The runes of the 1930s are being read again to help assess the present threat of protectionism. President Obamas watering down of his Buy America rhetoric should produce a sigh of relief in Downing St, where Gordon Brown has set his face against pandering to the foreign workers protest at the Lindsey oil refinery.. With luck, quiet mediation behind the scenes there may be paying off.
But what of the 1930s parallel? BBC Economics Editor Stephanie Flanders favours the theory that it wasnt protectionism, it wuz the banks, guv. The Guardians Larry Elliot goes with the variant that UK GDP slumped little in the 1930s because of the protectionist wall of imperial preference.
no country since the dawning of the modern age has managed to industrialise successfully without protectionism. Lord Skidelsky, the biographer of Keynes, says that Britain’s economic recovery from the Great Depression was based on three policies – devaluation, cheap money and protectionism. London created a system of “imperial preference” – free trade within the empire but barriers to trade with the rest of the world. Other countries followed suit, abandoning the gold standard so they could devalue and increasing tariffs, and this contributed to the collapse in trade and the prolongation of the slump.
Yet the data shows that Britain had one of the shallowest downturns of all the major industrial nations in the 1930s – a 5% fall in GDP. By contrast, Brown’s devotion to free trade and open markets sits uneasily with Britain’s massive – and growing – trade deficit.
These days, with the Empire gone, the EU might become the emergency substitute. Meanwhile, lets just concentrate on getting the banks to lend shall we? Next up, the “bad bank?”