Monday, December 20, 2010

Gordon Brown and the Financial Crisis of 2008

Enjoyed reading this review of Gordon Brown's recent memoirs from Robert Skidelsky:

"Misled by his success of 2008-9 in stopping the slide into depression, Brown remains too optimistic about what summitry can achieve. His "global compact" for growth, jobs and poverty reduction is a noble vision, to which we may stumble, through many new crises, but may well not. One can only hope that this brave, thoughtful, and decent man, who rose to the highest challenges but slipped on the lower slopes of politics, can find a post-political life commensurate with his abilities, interests, and power to do good."

A good person, who got the economic crisis broadly right, but lacked the personal charm and character to be politically successful.

For those interested Stiglitz writes a good article on the book as well.

"Much of Beyond the Crash will be familiar to readers who care about economics and globalisation, but seeing the issues through a political leader who helped shape globalisation for more than a decade provides new insights. Like many of us, Brown's thinking was shaped by the east Asian economic crisis and the clear need for financial regulation and global co-operation demonstrated by that crisis. He doesn't dwell, however, on the mistakes of the past, either those that led to that crisis or the more recent one. What he tries to do is to learn the lessons – as different as they may be from the conventional wisdom that prevailed before the crisis. He clearly sides with those who believe that unregulated markets may be prone to excessive volatility, with booms and busts in real estate and destabilising capital flows. While many of the advocates of liberalisation found it difficult to recognise that, for instance, there may be a need for capital controls at certain times, he unabashedly expresses his support. In praise of Malaysia's capital controls, he writes: "For a short time at least controls on capital can prevent, or at least reduce, the uncontrolled flow of short-term funds across borders." While he supports Hong Kong's response to the "double play" that attempted to bring down their currency, American officials who pushed unbridled globalisation have yet to recant on their criticisms...

Brown is outraged by the bankers' excessive risk-taking, their pursuit of greed. I can only surmise that had he looked more carefully at America's banks' predatory lending practices and the abuses in the credit card systems, how the financial system preyed on the least educated and financially unsophisticated, he would be even more outraged. But he does not dwell on these issues, though he devotes his last chapter, "Markets Need Morals", to the subject. And while his claim that markets need morals is right, I am not sanguine about their getting these morals. In their absence, government regulation will have to do.

There is still a debate about whether Brown's policies were effective. I believe that were it not for the strong Keynesian policies that he pushed around the world, the global downturn would have been much worse. We were at risk of moving into a global depression. I believe, too, that if he had not pushed his alternative approach of equity injections rather than merely buying bad assets from the banks, our financial system would be in much worse shape. (The Irish Republic is the one European country that has tried the alternative approach—not exactly an example for others to emulate.) ...

Given the size of the U.K. financial sector and the extent to which it was overleveraged, the U.K.'s problems were enormous, and, in my judgment, the success of Brown's response should have been widely acknowledged.

What is clear from this book is that Brown knew what needed to be done and tried to do it at a time when others were paralysed, captured by the financial community, or deluded by their past mistakes into trying to underestimate the severity of the crisis that their policies had helped create."


Post a Comment

<< Home