Monday, 6 October 2008

The problem with New Labour is that they do not regulate enough

Schardenfraud is a nasty trait, and yet it was hard to avoid enjoying the experience when Sarah Palin got caught out in a high profile interview recently.
The question she was asked was about specific actions that John McCain took to tighten regulations to prevent irresponsibility in the financial markets. The only way she could have answered the question is to not answer and quickly move on to another point and make the interviewer ask questions on that instead. No doubt some politicians can do it, and it is one thing to have the skill to do it, but the fact remains that the question is unanswered.
The reality is that the economic orthodoxy built up since the 1980s is one based on free market ideology, of which deregulation was a fundamental component.
First it was the political right that believed in it, then powerful forces on what was previously the left, and in the UK it is Liberals who have joined the concensus. Indeed many now argue that Liberalism is now defined by this free market ideology.
Now of course this ideology faces a major challenge. It seems so obvious now. Economic growth has been strong because of the bubble in the housing market. Housing in itself does not generate wealth, so it was bound to be unsustainable.
So now we are in a downturn, which we are assured by free market ideologues will not last long.
However if we have learnt the lessons from the housing bubble and we decide to regulate the market to stop this from happening again, then where is growth going to come from in the future?
Vince Cable is absolutely right to point out that he had been warning about debt for years. Some of his colleagues appeared not to take heed however. At a fringe meeting at Lib Dem conference Jeremy Browne argued, incredibly, that as he believes in markets then he was sceptical about nationalising any banks, even in the emergencies that we have today. He also said that although he bought a house with a very expensive mortgage, he was not worried about a slump in the housing market.
However it is not just debt, it is lack of regulation that causes debt. What has Vince said about that prior to 2008? If someone interviewed me and asked me this question, I for one would have a Sarah Palin moment.
What I do recall is a fringe meeting a couple of years ago at a Lib Dem conference where Ed Davey told us how he was going to deregulate further in the financial markets. He seemed very proud of this policy at the time. Personally I was horrified.
Of course I am sure it is possible to look back at the archives and find in the small print suggestions that might imply greater regulation. Given that Vince correctly identified the level of debt as a major flaw of New labour's economic record, I am sure Vince had a good set of policies to deal with it.
However greater regulation was never the headline solution as it has suddenly become, and the free market ideology had been encouraged within the Liberal Democrats, gaining a momentum where there is now a significant fundamentalist fringe within the party.
That fringe simply has no answers to the economic problems we are facing today. No one knows what the solution is to the economic downturn we are now heading into, but even George Bush is being forced to accept that "more of the same" free market ideology is the last thing we need to turn things round.
However Keynes once warned;
The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.
That is the problem the Liberal Democrats now face. Can they adjust their thinking quickly enough to account for the new realities?
These 2 links are the best articles I have read so far on the crises we now face;

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