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Lord Turnbull reveals extent of delusion that overcame Gordon Brown

Economic thinking | Lord Turnbull reveals extent of delusion that overcame Gordon Brown Ian Fraser

I’ve always suspected one of the main reasons the UK economy is in a more parlous state than many of its peers was because of hubristic and self-delusional economic thinking inside Westminster and Whitehall during New Labour’s 13 years in power.

Perhaps the country’s political elite had somehow convinced themselves there was no need for fiscal discipline since the economic goalposts had permanently shifted.

Well, I’ve now had the theory confirmed by none other than Lord Turnbull, who was for three years the most senior civil servant in H.M. Treasury, and who subsequently became the UK’s top civil servant. Giving testimony to the House of Commons Treasury Select Committee on Thursday October 28, Turnbull was frank.

He confirmed the extent of the delusion that had overwhelmed Britain’s political elite at the time, and also revealed that the most deluded of all was none other than Gordon Brown - Britain’s chancellor (finance minister) until June 2007 and prime minister until May 2010!

Turnbull said two "collective beliefs" were prevalent in Whitehall in the build up to the financial crisis. I'm not sure if he went on to say it (since I only heard excerpts of his testimony) but these were the self-same beliefs that ensured the UK government felt no compunction to “fix the roof when the sun shone” and led it to enter the financial crisis saddled with a £70bn structural deficit.

The first "collective belief" described by Turnbull was that Brown had genuinely “ended boom and bust”. The former mandarin suggested everyone at the Treasury at 1 Horse Guards Road subscribed to this view at the time. They must have seen Brown as some sort of demigod or magician! Turnbull, now an adviser to consultants Booz Allen and Hamilton, said the second  "collective belief" was that the

“Authorities of the world led by Alan Greenspan had found some way of conducting monetary policy... [in such a way that] we weren’t going to see the massive instabilities that we had seen in the past. Now it turned out that was …. a piece of groupthink.”

I don’t know if it was just me, but listening to Turnbull’s testimony on Radio 4’s Today in Parliament, it seemed that he was about to say something else at this point – perhaps bulls**t perhaps – then bit his lip.

Speaking to MPs on the Treasury Select Committee, Turnbull added that, after the financial crisis struck in 2007, Brown was the last man standing in British government circles who still believed that trend growth in GDP would remain unaffected. Turnbull said,

“Once the financial crisis broke, this adherence to [belief in a] trend rate of growth I think had... well in the end, it got down to only one person who believed that story … and we know who he was.”

Personally, I found Turnbull’s testimony fascinating. As he described Brown as the last man still to believe in perpetual economic growth, I couldn’t get an image of the 2005 film Mein Fuerher out of my mind. This shows a beleaguered ex-Nazi leader in his bunker still clinging onto the belief that World War Two could be won, even as Berlin lay in ruins all around, and all his generals and lieutenants had accepted the inevitable.

Closer to home there are parallels with the mass delusion that seems to have occurred inside the UK regulator the Financial Services Authority at the time, which is presumably why the regulator saw nothing wrong in letting banks with self-destructive tendencies such as Royal Bank of Scotland and HBOS (where similarly flawed thinking had also taken root) to take huge risks as they massively over-leveraged themselves.

Brown left Britain with two choices. Either impose fiscal austerity in order to reduce or eliminate the structural deficit. Or to deliberately reduce the real value of the structural deficit by allowing inflation to pick up and devaluing sterling. The Times has warned that option two alone would “be a 1970s-style recipe for constant currency crisis and a race for wage gains to beat rising prices. It is unaffordable, economically and socially.”

In the end the coalition government of prime minister David Cameron has opted for both policies at once. However it's worth remembering that if the previous government had not succumbed to the self-deception Turnbull described, neither the devaluation of sterling nor the depth of the public sector spending cuts (and tax rises) would have needed to have been anywhere near as painful.

I don't think Turnbull likes Brown very much. Back in March 2007, in an interview with the Financial Times, Turnbull also accused Brown of operating with “Stalinist ruthlessness” and said the former chancellor had a "very cynical view of mankind and his colleagues.”

Further reading on delusional economic thinking and the UK economy:

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Tags: austerity measures , currency devaluation , economic recovery , sovereign debt , UK
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