Sunday, September 23, 2007

Humiliation and Brown's Big Lie.

If you were watching Andrew Marr this morning, you would twice have heard Flash refer to the humiliation of being forced out of the ERM, and David Cameron's part in it. Even Marr, a noted leftie, couldn't help but say, " Yes you've said that already " when it came round the second time.
But was it? Arguably, the idea that it was humiliation was a media fabrication, and, certainly in economic terms, it has been anything but.
The idea that DC had any effect on the thoughts and decision making at the time is ludicrous.He was a very junior player - hardly more than the tea-maker.
But Brown and his minions trot it out, so much so that last week the BBC showed Cameron behind Lamont on the " fateful" day in connection with the Northern Wreck situation. Why? There is absolutely no connection, apart from trying to make political mischief.
Marr, of course, is not an Economist - he is a journalist and a political one at that.
An Economist would have stopped Brown in his tracks. It was political & economic stupidity to go into the ERM at the rate they did. Arguably, that was Mrs. Thatcher's fault, corelating a high exchange rate as a macho stance and a strong Britain. In fact, of course, only very powerful countries with a high degree of discipline can afford high exchange rates. What happens is that your exports are less competitive. However, if you can stand the pain, hold down wages, increase efficiency and so on, within a year or two you are booming along again. This is because, in relative terms, your exports become cheaper as the other countries buying from you lose competitiveness.
This is exactly what happened in Germany throughout the 60s , 70s, 80s and 90s. If you speak to German businessmen, they will tell you that things are permanently dreadful, but they still export more in monetary terms than any other nation on earth ( think about it - how many plastic ducks make up a Mercedes?) and enjoy an exceptional standard of living. But it relies on the self-discipline and self-denial of the nation.
So Kohl, reuniting Germany, screwed them with the Ostmark rate ( "Chancellor, no lower than 3 Ostmark to 1 Deutschmark" " Certainly, Herr Bundesbank" - 5 minutes later anouncing the rate " Our nation will forever remain together as one, at a rate of 1 to 1"), and then Schroder screwed them with the Euro, just when they had clawed their way back.
Now, they've done it again and clawed back their preeminent competitive position. No Germans are asking for a policy that will lower the Euro. But the French, Spanish, Italians,Irish and Belgians are.
So let's look again at what happened after Britain left the ERM. That's when Brown's "unbroken quarter on quarter expansion of the economy" started, and his claiming credit for it is complete nonsense, not only in economic terms, but in factual terms as well. So, far from being a humiliation, it was a masterstroke.
Brown, unfortunately, has been the beneficiary, rather than the Tories.
In Economics, the greatest truth is that promulgated by Keynes.
When accused of arguing the contrary on a position he had previously held, he replied " Why not? What do you do when you're wrong? I change my mind"

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