Belfast Telegraph

Friday 25 July 2014

Jeremy Warner: For the love of money is the root of all evil

So money is the root of all evil, is it? A group of Anglican bishops has attacked the Government for the “scandal” of trying to borrow its way out of recession and of “morally corrupt policies” in encouraging a culture of indebtedness.

The Bible says money is the root of all evil, Nigel McCulloch, the Bishop of Manchester, says, and the Government is guilty of being in love with it.

It's not my function to defend the Government from prothletizing clerics, but what a load of moralising, finger wagging old twaddle this is. Regrettably, depicting the credit crunch as some kind of thoroughly deserved, even divine, punishment for decades of credit fuelled greed has become very much the order of the day, not just among the clergy but across whole swathes of the political and media establishment.

I don't particularly blame the bishops for their preaching. If anything they come to the pulpit rather late in the day. The bishops do no more than repeat the new consensus, or zeitgeist, in finding a moral message in the present adversity. Nor are they the first to identify the inherent contradiction of the Government's position in trying to address a crisis caused by an excess of credit by borrowing even more.

Others have used the crisis to push home a more obviously political and ideological agenda on the economy where nationalisation and other forms of state intervention once more become the norm.

Not to be outdone, David Cameron, the Tory leader, has climbed aboard the bandwagon in demanding the authorities lockup the miscreant bankers, even as his colleague, the London Mayor, Boris Johnston, in an intellectually more honest position calls for an end to all bank bashing.

As the mob bays for more, the last rites are being read to three decades of Thatcherite economics. Meanwhile, the “old” state controlled capitalism of the immediate post war period is being enthusiastically piped back in. Naively, the new austerity is seen as somehow morally superior, more decent and caring than the credit fuelled consumerism of recent recent years.

Can this be so, and is it in any case what we really want? First, let's nail the specific charge levelled by the bishops of “scandalous” policy in addressing the recession by seeking to spend our way out of it. The Arch Bishop of Canterbury, Rowan Williams, has further likened the process to an addict returning to the drug.

Yet what does he suggest ministers do by way of alternative? To do nothing would surely be to condemn Britain to a decade or more of mass unemployment and take living standards back to where they were in the 1970s.

Perhaps the bishops hope that in being deprived of mammon, the masses will return to God and once more fill their empty churches, yet this hardly amounts to a compelling argument for sitting there in stoic resignation as the rising tide of insolvencies and repossessions engulf us.

When banks fail, governments must, in so far as they are able, step into the breach to provide the credit that the markets have chosen to withdraw. This is not an addict returning to the drug, but rather a necessary act of substitution, for no modern economy can function without credit.

The markets won't lend to banks in the quantity they used to because they don't trust the banks to be able to repay the money, but for the time being, they will still lend to governments, backed as they are by the compulsion of the tax base.

If the economy is to be saved from catastrophe, governments must step up to the plate and provide the services that banks used to in maintaining and creating credit. The effect is to allow the bubble of the previous boom to deflate more slowly, rather than blowing up in everyone's face causing irreparable devastation all around. By supporting the system, governments are engaged not in further recklessness, but an act of well intentioned charity. It may not work, but it is rather the purpose of government at least to try. Boom and bust is as much a part of capitalism as night and day.

Each boom ends in an orgy of excess in which the lessons of the previous bust seem to be entirely forgotten. As the cycle moves from creation to destruction, a “crisis of trust in capitalism” is declared, and the call goes up for more state intervention and regulation to keep the greed fuelled money men of Wall Street and the City at bay.

So serious does the present bust look like becoming, that this time around, the politicians may end up abolishing the boom bit of the cycle altogether, so as to save the banking and money system from any future self harm.

Perhaps surprisingly, the Labour leadership seems to recognise the dangers of over-reaction better than many parts of the media.

For the Treasury, part nationalisation of the banks is not an end in itself, but a necessity from which the Government should extricate itself as soon as it can. The last thing you want politicians in control of on any long term basis is credit allocation.

Besides, even after three decades of privatisation, deregulation and “rolling back the frontiers of the state”, the public sector still accounts for rather more than 40% of the UK economy, which strikes me as quite large enough. Not since the second world war, when the economy was on a command footing, has it been much above 50%. There is nothing new, or rediscovered about state intervention. The state has always been far and away the largest force in the economy.

Some aspects of the present crisis, far from being the fault of the free markets system, is in fact the direct result of over-regulation, political meddling and distortive tax policy. For instance, the US subprime crisis finds its roots not in over enthusiastic lending, though that is certainly where it ended up, but in the politically orchestrated quota system for encouraging home ownership among ethnic minorities.

Booms are not something to be condemned, as the clerics suggest. To the contrary, they should be celebrated for the innovation, prosperity and creativity they give rise to. Are we really to condemn, as the bishops seem to want to, the democratisation of credit and mortgages? Far from being an evil, this has been one of the great economic boons of the past 20 years, enabling unparalleled levels of home ownership and making the accoutrements of modern living available to all.

As these things always do, eventually it got out of hand, but that doesn't mean we should throw the baby out with the bathwater and return to a world of credit rationing and mortgage queues where only the middle classes get access to debt.

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