Heckuva job, Brownie (UK edition)

Paul Krugman has mixed feelings about the Labour Party’s shellacking in this week’s elections.   Me too.  It’s hard to feel sorry for Prime Minister Gordon Brown, who as Tony Blair’s Chancellor of the Exchequer was a Big Swinging Deregulator to rival the Greenspan-Rubin-Summers axis in the U.S.  Krugman:

‘Do Mr. Brown and his party really deserve blame for the crisis here? Yes and no.

‘Mr. Brown bought fully into the dogma that the market knows best, that less regulation is more. In 2005 he called for “trust in the responsible company, the engaged employee and the educated consumer” and insisted that regulation should have “not just a light touch but a limited touch.” It might as well have been Alan Greenspan speaking.

‘There’s no question that this zeal for deregulation set Britain up for a fall. Consider the counterexample of Canada — a mostly English-speaking country, every bit as much in the American cultural orbit as Britain, but one where Reagan/Thatcher-type financial deregulation never took hold. Sure enough, Canadian banks have been a pillar of stability in the crisis.’

But Krugman notes that Brown and the Bank of England have responded sensibly enough to the current crisis; in fact, their approach has been pretty much the same as the Obama-Bernanke approach:  expansionary monetary and fiscal policies, and rescues of troubled banks.

Krugman also notes that the Tories, far from offering a constructive alternative, have been sideline snipers harping on the deficit and calling for spending cuts, as if there was no fate worse than debt and as if countries could amputate their way to recovery.  Kind of like the Republicans here, except that the Bush Administration was in office during the initial phase of the crisis and actually had to deal with it.  The $700 billion bank bailout wasn’t exactly fiscal policy, but it obviously pumped lots of money into the banks and showed a decided tolerance of budget deficits in a recession.   And the Federal Reserve, under Bush-appointed Ben Bernanke, has gone to astounding lengths to try to pump liquidity into the banking system, defying root-canal conservatives who would argue that inflation is second only to debt as our biggest economic concern.

Who knows what comes next in Britain?  I believe Brown (or his Labour Party successor, if there’s an internal coup) has twelve months left before he has to hold a new round of general elections.  That gives Labour some breathing room — even if conditions don’t improve, the fiscal stimulus may show some signs of working and voters may reward that.  I still expect a Tory victory, but I suspect the Conservatives will find that talking tough about cutting spending during a recession is a lot easier than actually doing it.

“Good times make bad policy” (– an adviser to former Indonesian dictator Suharto, quoted in Naomi Klein’s Shock Doctrine).  Could it also be that bad times bring forth good policy, or at least sensible Keynesian policies?

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