The missing answers in the Darling interview
I think people are missing the wider context of Alistair Darling's interview with Decca Aitkenhead in today's Guardian, which is spun on the front page as "Economy at 60 year low". Obviously it prompts a number of questions, which I would be only too keen to put to him, especially if his special adviser is now in a mood to advise him "tell them everything". But first context.
The interview itself is not a "hard hitting interrogation" - and is proof that the quiet game is often more effective. It was conceived as a fireside chat on his Hebridean hideaway. But WHEN did it take place. I know for a fact that when HM Treasury was dealing with the Downing Street/Rebekah Wade-spun story on Stamp Duty Darling and his advisers were on Lewis, on holiday and as it now seems with Ms Aitkenhead the only journalist invited.
But that was two weeks ago! The interview, in other words, has been long set up by the G2 section as a profile piece and because Darling has, as I know only too well, not been doing interviews, the news line in it has aged very well and is fresher than it was when he gave it because in the meantime we have had the Q2 figures showing we are on the edge of recession...
Now here's a quote from the article:
>>The economic times we are facing "are arguably the worst they've been in 60 years," he says bluntly. "And I think it's going to be more profound and long-lasting than people thought."<<
This is where the advantages of a fireside chat in the Hebrides are outweighed by the inability to hear exactly what Mr Darling said, and of precision language. Because it is manifestly untrue that these are the worst economic times for 60 years.
We have 0% growth for a quarter and a 10% drop in house prices. McDonalds is booming, so is Netto, so is Primark so is Ryanair. People are reallocating their spending but they are still spending. The recessions of the 1970s and 80s saw two years in a row of negative growth, sometimes above 2% negative. There were 3 million unemployed under Thatcher. In the 1970s the secondary banking system collapsed followed by the Latin American debt crisis.
What it is commonplace to hear in the City is that this is the worst financial crisis for 60 years: bankers are losing their Lamborghinis because they've had to write off 500bn dollars worth of inadvisedly lent money. So there is a major risk of systemic banking collapse. I would have liked to have heard Darling's view on this, and on how the lifeboat he and the Bank of England are creating is going to work if it has to be launched. There is one maverick but respected banking analyst in the City (Bruce Packard at Pali) who believes the whole sector is going to have to be nationalised. Given it took Mr Darling four months to come round to nationalising Northern Rock, has he changed his mind?
House prices? My house is now worth what it was when I bought it three years ago. Big deal. I am glad because it means there is a chance that people with kids who are not stockbrokers might be able to afford to live on my street.
Where I agree with him is when he says: "And I think it's going to be more profound and long-lasting than people thought."
Certainly than he thought: only in May at the Mansion House speech he was telling us that the economy would grow but more slowly. I will bet him that extra bottle of wine the waiter wouldn't give him in a restaurant (see the interview) that we are in recession.
I think his remark on not anticipating the crisis has also been misinterpreted:
>>He hadn't the faintest inkling of the financial crisis about to unfold before him. "No, no one did. No one had any idea." <<
I assume he means the actual week that inderbank lending dried up in August 2007, while he was on Mallorca on holiday. This is true: I spoke to investment bankers white-gilled shortly after it happened. But the growing risk of a credit crunch was there. Even idiots could spot it. One absolute amateur, writing in the New Statesman in March 2007 said:
"The fear now is that, as investors run away from risk, they take losses and expose problems previously masked by the sheer complexity of modern financial instruments - and that this in turn begins to impact on the real-world economy. Attention is focused on four threats which, in their over-optimism, policy-makers at Davos had downplayed."
That was me. Read the rest of the article - fear of a credit crash was widespread and in hindsight I surprised myself with the accuracy of the rest of it, but it was all based on briefings from people in global consultancy, hedge funds and investment banking.
I find the rest of the article vaguely interesting, and especially that he doesn't like Wendy Alexander.
But the unanswered question now is, pace Keynes: if the facts have changed, are you going to change your mind? Maybe amid the home made soup and Talisker this question got lost. And of course it was never meant to be that kind of interview. But he needs to answer it sharpish.
Since we're dipping into recession are you going to reinterpret the Bank of England's mandate, as one MPC member has requested, and direct it to prioritise growth above inflation. Are you going to launch a comprehensive economic plan promised umpteen times by Gordon Brown in the aftermath of Crewe & Nantwich? Are you going to extend the special liquidity scheme, are you going to launch state-backed mortgages as optioned by Crosby, are you going to give a stamp duty holiday; are you going to borrow to give headroom for fiscally reflationary tax cuts?
And where is the effort going to be targeted? How are you going to meld the bitty reforms being dribbled out next week into an electorally viable strategy, and story, to head off not just the Conservatives but those very people you have been muttering about on Lewis (eg Ed Balls), and those other Milliband/Milburn people outlined in a handy flow chart in this week's edition of PR Week?
So come on Chancellor: on Newsnight we have home-made soup too. Where's the strategy, what's the plan?