Chancellor is wrong on so many levels

Gordon Brown likes to portray himself as a man of urbane sophistication with a fine grasp of the complexities of global finance. In reality, as his views on international monetary reform show, he is as parochial as the most provincial bank manager. The solution to virtually everything for Brown, as with New Labour in general, is ever more intrusive forms of regulation.

In an opinion piece in the Financial Times last week the Chancellor argued that: “The lesson of recent decades – from the 1970s’ oil crises to the 1990s’ Asian crisis – is that it is no longer sufficient for our international institutions to focus on temporary support for temporary balance-of-payments problems, but on all threats to its stability.”

The sentence is wrong on so many levels that it is difficult to know where to start. It is certainly incorrect to classify the economic turmoil of the 1970s as “oil crises” or the volatility of the 1990s as the “Asian crisis”. The early 1970s marked a sudden global economic slowdown after a quarter-century of rapid growth. Rising oil prices were a symptom, rather than a cause, of the problems being experienced.

Nor, strictly speaking, was the financial crisis of the 1990s “Asian”. Speculative capital from the West, trying to find rapid returns from investing in Asia, also had a lot to do with it.

Most peculiar of all is the demand for international institutions to focus “on all threats to its stability”. This is strange because the world is exceptionally stable at present. As recently discussed in Fund Strategy, there is even a widespread discussion of what is called “the great moderation” or “the great stability”. The fact that Brown is so concerned about instability in an era of unprecedented stability probably says more about his anxious mental state than it does about the world economy.

Another twist is the emphasis on ALL threats. In theory, all sorts of things could threaten global economic stability: politics, military conflict, or even the admittedly unlikely scenario of earth being struck by an asteroid.

Since the future is inherently uncertain, it often makes sense to wait until something happens before reacting to it. Trying to anticipate all threats is, at best, a futile exercise. In this sense, it is often better to resolve crises once they occur rather than try to prevent future problems, which have an essentially unknowable character.