One cheering side-effect of economic depression, is that it provides occasion to recall Keynes's sideline in Wildean aphorisms
One cheering side-effect of economic depression, is that it provides occasion to recall Keynes's sideline in Wildean aphorisms. One rebuke to purveyors of a failing conventional wisdom, which may have been refined in the retelling, was "When the facts change, I change my mind. What do you do, sir?" On Wednesday Mervyn King admitted that the facts had changed, but refused to change his mind.
Even as he conceded that the buoyant growth he'd once expected for 2012 had, literally, come to nought, the Bank of England's governor saw no urgent need for fresh stimulus. After confirming the slump would endure for longer, he revealed that the delayed recovery will prove anaemic when it eventually comes. He got unwisely close to the political fray by stressing that every chill wind came from overseas, and – by implication – that none had anything to do with George Osborne. The chancellor's plan had looked "pretty sensible" to all mainstream opinion in 2010, he suggested, disregarding the warning shots that eminent economists had fired off to newspaper letters pages before the plan was set. All of this is of a piece with a governorship that has been behind the pace, ever since an initial failure to spot the slump coming.
Sir Mervyn's performance at his press conference was frustrating, but he was right on one important point. Faced with a barrage of questions about why he would not consider more radical steps, such as allowing the Bank to directly finance the deficit by buying up government bonds and burning the certificates so the Treasury never has to repay, the governor said he had no authority to countenance such a thing. Even though it is possible that we are already drifting towards this eventuality, its explicit embrace would be a wholesale merger between fiscal and monetary policy – a momentous step that any self-respecting democracy would reserve for somebody who had taken the trouble to face the voters.
It is remarkable that the suggestions at the press conference for "direct finance", and for replacing the electronic cash that Threadneedle Street magics up for the banks with "helicopter money" dumped on ordinary citizens, came from the brainy high priests of financial journalism. A few years ago, they would have ridiculed such ideas as coming straight out of Robert Mugabe's handbook of economic management, but these are not ordinary times.
The slump is defying the ordinary models, which is why the likes of Sir Mervyn are having continually to revise down their forecasts. Figuring out a new way to predict is phenomenally tricky, and it must be conceded that this will take considerable time. The thing that can't wait, however, is a new line in policy. And to that, more in hope than expectation, we have no alternative but to look to Mr Osborne.