Guardian - Larry elliot - Brown damned by his Faustian pact
This argument is both right and wrong. It is quite true to say that the financial crisis of the past 10 months was the consequence not of too much regulation but far too little. It is equally true to say that the most important economic task of the coming years is to restore the prudential controls that will deter the financial system from taking such reckless gambles. Where the argument falls down, however, is in its assumption that Labour is ideologically equipped for that job. ................... Labour struck a bargain with the devil. Having decided that the financial markets were too powerful, Labour made a virtue of necessity. There would be no talk of tougher regulation to rein in the excesses of speculation; on the contrary, the message went out that the City was to have the lightest of light-touch regulation. And if there was to be no limit on the sort of business the City could do, nor were there to be any limits on what the traders could earn. There would be no mention of raising the top rate of income tax. In other respects too, Labour turned its previous policy on its head to make itself respectable with the financial markets. Public spending was frozen for two years; an over-valued exchange rate attracted hot money into London while crippling Britain's industrial base.
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Labour struck a bargain with the devil. Having decided that the financial markets were too powerful, Labour made a virtue of necessity. There would be no talk of tougher regulation to rein in the excesses of speculation; on the contrary, the message went out that the City was to have the lightest of light-touch regulation. And if there was to be no limit on the sort of business the City could do, nor were there to be any limits on what the traders could earn. There would be no mention of raising the top rate of income tax. In other respects too, Labour turned its previous policy on its head to make itself respectable with the financial markets. Public spending was frozen for two years; an over-valued exchange rate attracted hot money into London while crippling Britain's industrial base.
Sadly, the chances of such a repetition [of the New Deal] today are slim, even though a few carefully targeted financial asbos would be consistent with New Labour's social authoritarianism. It would be greeted with wholly erroneous claims that the government was driving businesses off shore in order to curry populist favour. That is the government's predicament. It has moved so far from its traditional social democratic roots that any action to remedy the excesses of capitalism can now be portrayed as being akin to Bolshevism. The obvious solution to the 10p tax fiasco, for example, would be to raise the money from the rich instead. That, though, is off limits. The simple solution to banks refusing to pass on lower interest rates to their customers is to use Northern Rock as an aggressive state-owned competitor for mortgages. That, too, is off limits. There is, of course, not the slightest suggestion that the Conservatives would do any of this either. But that's not the point. There is a policy vacuum and today the Liberal Democrats will seek to fill it when Nick Clegg urges tougher regulation on the City. For Labour the warning is clear, since the public is asking a perfectly valid question. If the government is culpable for the economic crisis but responds to it with utter passivity, is there really any point to it?
That is the government's predicament. It has moved so far from its traditional social democratic roots that any action to remedy the excesses of capitalism can now be portrayed as being akin to Bolshevism. The obvious solution to the 10p tax fiasco, for example, would be to raise the money from the rich instead. That, though, is off limits. The simple solution to banks refusing to pass on lower interest rates to their customers is to use Northern Rock as an aggressive state-owned competitor for mortgages. That, too, is off limits.
There is, of course, not the slightest suggestion that the Conservatives would do any of this either. But that's not the point. There is a policy vacuum and today the Liberal Democrats will seek to fill it when Nick Clegg urges tougher regulation on the City. For Labour the warning is clear, since the public is asking a perfectly valid question. If the government is culpable for the economic crisis but responds to it with utter passivity, is there really any point to it?
Then again, the Liberals have a history of advocating for regulation. For instance, the "patrician liberal" Keynes mentioned in a previous paragraph:
The last time big finance messed things up as spectacularly as this was the late 1920s and early 1930s. Then the retribution was swift and brutal. Tough controls were put on banks and they remained in force for the duration of the long post-war boom and were put there by people who were not anti-market but who wanted to save the market from itself. Neither Roosevelt nor Keynes qualified as a raving leftie: one was a patrician Democrat, the other a patrician Liberal.
To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.
