Setting the record wonky

Chris Mullin, for whom I have more respect than for the average former Labour minister, tries to undermine a 'lie' he accuses the government of propagating with another set of untruths in today's Independent. He begins by smudging the history of the recent financial crisis by telling us,

Point one – and this is so obvious that one should not have to make it, but alas memories are short – is that the crisis is global. (Even the Americans agree it started in America.) (src)

Fair enough, the banking crisis did begin in America. But if we're going to look at that side of things, it didn't begin with the banks. It began with an American administration — in fact, a succession of administrations — which were keen to encourage higher home ownership among people who, to put it very bluntly, couldn't afford it. So they meddled in the mortgage market using financial quangos like Fannie Mae and Freddie Mac. Eventually, this meddling blew up in their faces as the banking sector passed the risks around like a hot potato on the assumption that Uncle Sam was going to bale them out. As, indeed, he did. If this is a failure, it is a government failure. This is not the best ground to be arguing from, if you want to defend an activist role for government.

Mullin continues,

Point two: most of the deficit was incurred while rescuing the economy from the folly of the bankers, derivative traders and hedge funders, few, if any, of whom are Labour voters.

All very nice, except it's not true, is it?

For the most part, the bale-outs did not require huge injections of cash: the Government simply promised to underwrite certain institutions, being good for the cash if it ever came to it. Moreover, if the bale-outs had caused the deficit to rise substantially, then the deficit would have decreased naturally now that no further bale-outs are being undertaken. Instead, the deficit is still with us, which puts paid to the notion that it was mostly incurred as a one-off payment.

No, the deficit really is Labour's fault, and the figures bear this out. Gordon the Prodigal was running a deficit well before the financial crisis, and while the slight decrease in GDP will have reduced tax revenues while exacerbating the scale of the deficit, it was not incurred 'rescuing the economy'. The exact date that Labour's surplus turned into a deficit depends on your definition, but public sector net debt as a proportion of GDP began to rise in 2001 and hasn't fallen back since (src).

But there is more!

"Light-touch regulation" was the mantra of the hour. … Quite apart from which, no amount of regulation would have protected us from the tsunami that came from America.

So, let me get this straight: the problems we got from America were caused by heavy-handed government meddling in the market, and no amount of regulation could have saved us from them. But we need more heavy-handed regulation here in the UK because, um, [argument goes here - Ed.].

Chris Mullin understandably wants to dissociate the government of which he was a part from the problems we now face. The difficulty he has is that they are indubitably tied up in them, and it is not just good politics but necessary to remind the British public of that fact.