Obviously, Maturin Towers felt obliged to comment:
Jack Maturin on January 20, 2009 at 12:34 PM
Gordon Brown has got this completely wrong from start to finish. This latest bank bailout will also fail, due to his utter incompetence and his inability to look in a mirror and say to himself, 'you got it wrong'.
All of these problems stem from his belief that he had magically abolished boom and bust, ten years ago. With artificially low interest rates and massaged inflation figures, which excluded anything which really went up, such as housing, and which concentrated upon anything which really went down, such as computer prices, Gordon Brown deluded both himself and the entire British population, and deliberately created the mother of all housing price bubbles.
He also subjected this country to a torrent of petty-fogging regulations and tax rises to boost his favoured client-state sector with millions of non-jobs to fill a Labour party vote bank, creating hundreds of offices filled with his clients in marginals up and down the land.
He thus destroyed manufacturing, because goods now cost far too much to produce in this country because of all of these taxes and regulations. Plus, all of his non-job clients need to do something to justify their salaries, so they do it by harassing business people with compliance issues over race discrimination, sex discrimination, and whatever other cost-increasing discrimination they can think of.
It makes much more sense for investors in put their money into factories in Asia, where tax and regulation are much reduced. Thus, we were left with an economy dependent upon personal services, particularly in the financial sector, and with a tiny manufacturing base entirely dependent upon artificially cheap credit, and a hypnotised population borrowing against their rising house prices to fund extravagant lifestyles.
When the market of human time preferences finally caught up with this artificially cheap credit, by increasing LIBOR interest rates, the game was up. As Barack Obama is also going to find out, you cannot buck the market forever, unless of course you think you are God, King Canute, or Gordon Brown; take your pick.
What Gordon Brown should have done when Northern Rock went to the wall was to let it go bust. He should have then immediately started slashing government spending, taxation, and regulation, to get the British government off our backs. He should particularly have concentrated on removing all investment taxes, such as capital gains taxes, interest taxes, and anything else which hinders people investing in factories which make stuff. All such tax cuts should have been matched by government spending cuts, not by increasing government borrowing to pay for them. He should have ordered the Bank of England to stop creating money out of thin air.
Yes, a lot more zombie companies, such as RBS, would also have gone under with this harsh regime, but the chips would have fallen, we would have then picked ourselves up, and we could even now we might have been looking at the beginning of the end. But no. This would have entailed admitting that socialism is stupid and that he, personally, was wrong. So we have had failing bailout after failing bailout, to keep the artificial boom going, and we are therefore heading towards a bond bust. When that happens, Gordon Brown will be left with nothing but a printing press, and then we will be looking at a combination of stagflation, hyperinflation, punitive interest rates, rationing, price controls, shortages, and ultimately, either a military dictatorship to force people to work, or a politician to come in and sort out this mess who will make Margaret Thatcher look like a Brownie pack leader.
And none of this is 'uncharted', to borrow Peter Mandelson's phrase. This entire process was mapped out in full by Ludwig von Mises in his 1912 book, 'The Theory of Money and Credit', for anyone with the wit to read it (which doesn't include any economist labelling themselves a Keynesian). In this short book, Mises lays out the full Austrian business cycle theory which explains this current crisis down to what colour underpants Alistair Darling will choose to wear on the day of the next bailout announcement. The book is even online as a free PDF, should anyone dare to read it.
So, an Austrian economist who died 35 years ago, who wrote a book nearly one hundred years ago, knows more about this current crisis than our current Prime Minister and Chancellor of the Exchequer. Perhaps they ought to read it and find out what he said.