The British government will do anything, absolutely anything, to avoid boosting demand in the recession. Yesterday's frantic rescue package for the car industry will boost profits (or reduce losses) but not sell a single extra car. As for the steelworkers of Llanwern, on whom such sales depend, the policy can only be to retrain them as hedge fund managers. Billions in subsidy is now rescuing hedge fund managers, nothing to rescue steel.
Ever since Alistair Darling hired a posse of City bankers to advise him on recession, they have recommended that he give money unconditionally to banks. As the Titanic sinks, they cry that he cannot let bankers drown. They are our friends. Let steelworkers sink, but keep the boats for the bankers.
I wonder what advice Darling would have received if he had ennobled a dozen steelworkers and asked them to sit in the Treasury. He might protest that they would merely tell him to save the steel industry. But at least steelworkers would have gone out and spent. Bankers have hightailed it to Monaco.
Since nobody has a clue as to what is happening to the economy, we might as well return to first principles. The Llanwern worker makes steel mostly for three consumer industries: cars, white goods and buildings. His job depends not on the viability of some distant bank, but on the public buying his product.
The only sensible way to keep this man in work is to ensure that the public keeps buying. All else is smoke and mirrors. Beg people to buy, lend them to spend, give them vouchers, cash, anything to keep them in the marketplace for goods and services. All else is delay and a waste of effort.
The Brown-Darling policy is archaeo-Thatcherism. It is to regard the steelworker as a residuum of an economic downturn. The government has decided to aid not Corus, but Corus's bank. It has hurled money at banks in the vague hope that some might stick to Corus and thus to its workers. Without demand this is pointless. No bank lends to a bankrupt foundry.
What the banks are doing instead is using the money for something they regard as worthwhile, covering the debts outstanding on their balance sheets. Some of these are from poor home-owners, recklessly induced to buy by Gordon Brown and Yvette Cooper. But most were run up during the wildest speculative bubble known to economics, the buying and selling of financial derivatives. Dutch tulip futures were at least about tulips. Today's debts are a pyramid of promissory notes at the base of which lies next to nothing, the so-called toxic paper.
This pyramid of bankruptcy should have been collapsed long before anyone collapsed Llanwern. The regulators could have dismantled it after the rescue of the first casualty, Northern Rock, in 2007, but they were asleep. They (or their US brethren) might have done so again by rescuing Lehman Brothers and thus underpinning credit last summer.
When the system unravelled in September the only sensible path was to acknowledge that the banks were bankrupt. Retail banks owe their proclaimed special status - their access to Treasury funds - to their ability to lend, to their credit. Without that credit, and unable to lend, they are a waste of space. Sir Fred Goodwin's RBS is now no more entitled to taxpayer subsidy than a used-car dealer on the North Circular.
When trucks loaded with Darling's loot arrived at the Square Mile, the banks should have been properly nationalised. Depositors' balances should have been protected to keep the cash machines working. Bank shares, assets and liabilities would have gone into administration and managers would have become government agents, lending guaranteed loans to businesses on public credit. This is now being done, but three months too late to save hundreds of thousands of jobs.
Instead some £85bn of public money, the biggest state gusher in peacetime, has vanished into relieving the debts of private financiers. But inevitably not enough. This has brought down the lending banks and dried up credit. Recession has duly ensued. There is no mystery here. It is in the textbooks.
On the outbreak of the Great War, the City of London pleaded to be left to continue normal business with Germany, lest its worldwide credit be damaged. The chancellor, Lloyd George, said that Britain was at war and the City would do as it was told. Every interest rate and every loan was put under state direction. Banks were ordered to buy government stock and lend money according to a state capital issues committee. "We are Treasury-ridden," they howled. But they obeyed and the war was won.
The story of this saga by the City historian David Kynaston tells of the utter selfishness of bankers and the confident command of Lloyd George. Faith in him, even in the City, became so total that, when he mooted moving to 10 Downing Street, the governor of the Bank of England interrupted the great man shaving and burst into tears.
Such loyalty is inconceivable today. Stupefying amounts of taxpayers' money have been given to banks, and with no conditions attached. It has been nationalisation without responsibility, nationalisation as charity.
If local councillors had behaved like Darling and Brown, they would have been arrested and surcharged. They have given favours to their friends. They are the Shirley Porters of New Labour. The latest gimmick is to lend money to car companies to innovate and "be green". How it is green to carpet the countryside with thousands of unsold cars is not explained.
The Germans are doing the right thing. They are issuing vouchers to people to spend on German-made cars. The money goes straight from the consumer to the producer, thus keeping the dealer, the factory and the steelworker in business. None of it sticks to a bank. The same could be done across the economic piece.
There is no other way of keeping in business the 2,500 laid-off Corus workers of south Wales, the 2,500 Philips electronics workers, the shopkeepers, drivers, waiters and hairdressers, on all of whose incomes recovery depends. Only revived demand will do that.
Instead Darling and Brown (with full Tory support) are systematically depressing the economy. This is not a matter of left or right, socialism or markets, free trade or protectionism. It is common sense versus stupidity. Stupidity is winning.
Copyright Speakers Corner 2017