20 September 2008

Is Gordon Brown the New Neville Chamberlain?

Whatever else Neville Chamberlain did throughout his political career, he will be remembered for just one thing - returning to England after finalising the Munich Agreement with Hitler and declaring "I believe it is peace for our time." Such big claims are alway liable to come back to haunt you if they prove to be false.

In the ever worsening economic slump, I can't help feeling that Gordon Brown might similarly be remembered purely for his claims that he'd put an end to boom and bust.

If, in 1997, he only expected to be around for one term, it might have been a politically sound statement for Brown to make, even if he didn't believe it was true; you can get away with claiming to have eliminated boom and bust when you're in the boom phase. Of the boom and bust double act, boom has always been the more popular partner. It isn't really boom and bust that joe public wants to see eliminated, just bust. So long as you're out of the way before bust makes a come back and you can blame your successor, you're laughing.

If, on the other hand, Brown genuinely believed that he had put an end to boom and bust, he was both arrogant and stupid. He made certain economic changes, such as giving the Bank of England control over interest rate changes, which created more economic stability, but he completely failed to address the underlying land price cycle which drives boom and bust. By failing to heed the warnings of the likes of Fred Harrison and Fred Foldvary, he's been the architect of his own demise. The ultimate irony is that, by creating stability and constant growth in the boom part of the cycle, he might have made the bust phase worse.

Unless he quickly recognises his mistakes, he's only going to make them worse. His efforts to keep the housing market moving at any cost have turned it, even more than before, into a giant pyramid scheme, with more and more money being pumped in at the bottom to keep an unsustainable chain going. If house prices are falling, it's because speculation had pushed them too high. Continuing to stoke them will just make the inevitable fall even harder.

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