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Economic Council. Regional ministers. Massive liquidity flood. Wow.

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Paul Mason | 17:24 UK time, Friday, 3 October 2008

OK this is big. I am slightly depressed that in a press conference about the biggest change in UK economic policy in over a decade most of the questions were about Peter Mandelson, and I suppose so is he. Here's the announcement. As you can see the new Economic and Regional councils involve almost everybody powerful in the government. It is, as Nick Robinson suggested, a "war cabinet" (except as it now strikes me there is an even more evocative parallel: the Stavka!).

But equally important is Gordon Brown's response to a question: the "old economic policy" he suggested, of tweaking interest rates to control inflation (and by implication of staying with arbitrarily defined fiscal rules) is dead.

I will get to the critique and depth analysis in an updated. But my snap reaction to this is it a) prefigures a major change in economic policy which will be fleshed out in the PBR; b) a big change in the political apparatus for running the economy. Think "Board of Trade" under Heseltine or Tony Benn to come up with parallels.

Finally, c) it is one massive two fingered gesture to David Cameron and the most telling and incisive point in his Tuesday speech. Where Cameron suggested Labour's problem was "state-downwards" solutions to social and economic ills and what was needed was the intermediate transmission mechanism of society, friendship etc. Well this is statism - I don't say it is a turn to the left but it is certainly a turn to a dirigist solution to the crisis.

BERR will now, instead of being eviscerated as it steadily has been, fold into a governance mechanism that replicates huge chunks of what the old DTI used to do.

UPDATE: It also creates a massive political opportunity for the Conservatives, and in a way the Libdems. Here's how. a) If it doesn't work, virtually the entire government is tarred with the brush of failure - this I suppose is why Gordon Brown designed it this way: we all sink or swim together. b) It is not obvious what huge regular meetings of umpteen Permanent Secretaries and Secretaries of State will achieve even on a dirigist agenda. They will lay themselves open immediately, as all social services departments know, to a "meetings culture". c) As I say before it exposes a total difference in political philosophy between Brown and Cameron; statism verus the small state; regonalism versus localism. At the same time the move can be easily painted as left: the people I am speaking to in the Labour party already are fairly keen to paint it as such themselves.

UPDATE 2: I have now spoken to two senior government spokespeople about this and I have yet to find an answer to: "If the old policy does not work, what is the new policy?" They seem a little nonplussed: I am told the template for the new way of working is all the cross-departmental work that went into the housing and energy announcements. Since these were greeted as something of damp squibs, it just makes you realise how many ministers you have to get into a room to make something happen fast. I asked Downing Street how you would go about getting something onto the agenda of the NEC. They said "we don't want to talk process" but indicated that the Business Ambassadors will be playing a part here. I asked for a case study as to how the new body might be effective but nobody can give me one. I asked for an indication of what its early agenda might be, and was told that it would set its own agenda come Monday. There is an element of free-form governent emerging here. We will just have to see how it works. The original "Stavka" - I know people hate these Stalin analogies but I can't resist them - worked because it could circumvent bureaucracy and micromanage with extreme force.

UPDATE 3: If I were an oil speculator or an OPEC minister I would regard myself as firmly on the agenda of the NEC now. This has emerged in briefings as one of the things they are going to try to tackle: a holistic energy policy with global and local actions to shape the pricing mechanisms.

One bit of nuance on the Mandelson re-appointment. As a seasoned Labour watcher I read this as something different than "the return of Blairism". Notice who's been kept out: Charles Clarke, Milburn, Byers et al. And the post-Blairite ministers - Purnell and Burnham - have been kept in post and not promoted (although Purnell sits on the NEC). No - together with the appointment of Ray Collins, and the re-emergence of Alistair Campbell, this is the "labour movement" wing of Blairism that is in the ascendant. Why is that important? Because I get a sense that this subset of New Labour thinks it can play a part in reinventing the old formula on new terrain. They will be happier to junk a lot of the "choice" and "light touch regulation" mantras of old on the grounds that "these are new circumstances". The permission to do this was contained in that single Brown remark - the old economic policies of tweaking things dont work.

A further point: this marks a decisive move of the government off legislative terrain and into rule by fiat. Most of what these various councils, work groups etc will do will be done through orders in council - and I suspect they will be unable to resist at some point donning hi-vis vests and digging trenches themselves.

More later. Hit the comments.


  • Comment number 1.

    Whatever happened to NEDDY?

    Anyway, sounds like 'joined-up' thinking but then again, it always does, but never quite turns out that way.

    It will be interesting to see if the 'target' (inflation) is updated and any additional targets (growth) are added.

    Plus, joining the euro 'proper' lurks in the background.

  • Comment number 2.

    yes it did seem a bit 'air head' for nick and the gang to focus on mandy [a story that must be like opium for the yapparazzi?]

    if there has been a 'pearl harbour' then its our own people dive bombing our own economy?

    But are the international financial oligarchy 'our people'? Are functionairies behind desks in Russia, China, Middle East, Africa, South/North America playing a game of poker among themselves and just because this time the 'civilians' got hurt then isn't it their fault for allowing them to play a no rules game?

    Financials are huge funders of political parties. The politicians bought the 'no regulation' story of the Chicago school who terrified them with stories of financial loss if they meddled with the voodoo of the market wizards. They did not stop to think that why were financial markets the only place to have no or 'light' regulation when if the same happened to roads, airways, hospitals disaster would ensue.

    There now are, i suspect, big contingency plans underway in the background as a precaution to deal with any eventuality. To add layers of robustness.

    If this is a 'dunkirk' then we might need a miracle?

  • Comment number 3.

    ...The launch of 26 unregulated funds in Jersey since their introduction on February 19 this year represents a solid start for the unregulated regime ...

    Unregulated Eligible Investor Funds and Unregulated Exchange Traded Funds established under the new regime have no audit requirement, no limit on the number of investors, no investment or borrowing restrictions and no requirement to use Jersey service providers...

    no audit requirement?

    given a lot of this happens in the channel isles, isle of man, cayman etc are they not untouchable?

  • Comment number 4.

    This, or something like it, is probably an unavoidable step. Whatever trust mechanisms are left in society they're not going to be there to stop us going into this crisis. The state has done the only thing that makes sense. Expect many of the future unemployed to be building parking and picnic sites along our highways.

    But, do any of us realise the amount of power that Brown now possesses? I wouldn't have said this two months ago, but Cameron has lost the election. Everything about him is just too lightweight for the downward shift of events, and the fact that the problem is so visibly attached to the US, bankers, Wall Street, the City, and that Conservatives are so visibly attached to them, means that Brown isn't really being blamed for this, but reaping a reward. As far as I can see Brown, strangely, has, within weeks, got himself into an enviable position. There's no one in the Party to challenge him: his new unit can get things done and hammer the bureaucrats: a whole range of people will find that their interests are linked to Brown's statism, and expect opposition to diminish accordingly. (I always assumed that David Davis was playing for position and hoping the economy would continue to unravel, coming to our rescue as a right-wing saviour, but Brown has out-maneuveured that possibility, it seems.)

    Final point, isn't this dangerous? I always felt Brown was Ahab - after the impossible and fuelled by anger. Is he the man to have such power which will increase hugely as the economic shocks continue? I actually don't want to live in a country where Brown's personality, his authoritarian streak, and his gloomy, presbyterian work ethic sets the tone.

    It's possibly a few too many steps ahead. In this instance, in my opinion, he's done the right thing.

  • Comment number 5.

    #2 bookhimdano

    "no audit requirement?" - seriously? This is ridiculous, and embarassing, given that they are meant to be British territories.

    I was amazed to find that there is so much money stashed away in these places that if we were simply to confiscate it it would pay off the funding gap in the British banking system and/or pay for the entire US banking bailout....

  • Comment number 6.

    if this is a "war counsel" does that mean it will disband when the "war" is over?

    what is the "war" - getting through the immediate crisis, coming up with a new regulatory/institutional framework, or ongoing micromanagement of the economy?

    will this counsel be a decision making body, or (more likely) a forum for brown to gather information and disseminate policy?

    i doubt very much that they will scrap inflation targeting. it has actually been very successful at dealing with rpi. instead i think there will be a recognition that asset price inflation will need to be dealt with via a new policy tool, probably direct counter-cyclical limits on credit creation.

  • Comment number 7.

    re updates

    sound finance isn't rocket science. anyone who balances their home budget is a better economist than those in the failed financials.

    there is no voodoo that will get around the rules of finance as there is no voodoo that will get around the laws of physics. Those selling voodoo or those preaching voodoo need to be exposed and laughed at.

    voodoo = doodoo

  • Comment number 8.


    bookhimdano (#7) But how many will do that? Will they count enough to matter? Have you seen Richard Dawkins try to take on voodoo? Waste of time. It's really not getting through is it? One has to look at the demographics not just think in terms of peers. We've made such a mess of our birth rate/demographics through contraception and especially bright female education, that we now have voodoo absolutely everywhere. We have it in our schools, we have it in our universities, we have it in the media, we have it absolutely everywhere. That's what Generation X 'have everything now - and right now' has led to: infantile (or at best, adolescent) behaviour. But if you try telling toddlers or adolescents that it will always end in tears....

    They then invariably feel ENTITLED to be bailed out.. That's narcissism. It's a viscious circle:- destroy family life and one increases the rate of NPD. People (women) are too busy working to attend to kids and build families/communities.

  • Comment number 9.


    Is this another war on an abstract noun - debt replacing terror?
    Didn't someone lofty say recently: 'The world has changed' all deja vu like?
    It just feels like a load of bullocks to me; such as is usually generated by a lot of people in a meeting. People who really know how to do stuff, don't go to many-splendoured meetings. They just can't stand the pain. Every time I see the Cabinet round that table my heart sinks.

    I see one objective is said to be to help small businesses. Two points: (1) when I was a small business, government had no clue what 'small' meant. (2) The finest thing for small businesses would be if they got paid within the shortest feasible time after work was completed, or service provided. They don't want interest on a de-facto loan, THEY WANT TO BE PAID IN FULL! Many small businesses go to the wall in this cock-eyed country due to debt dominoes. This has prevailed for decades and is only of advantage to banks who fund sales ledgers and shysters who go broke as a way of life.

  • Comment number 10.

    Amazing that the whole of the media in its colourful(less?) Prince of Darkness, big beast ( I must have heard this half a dozen times) clicheed imagery missed the significance of Mandelson's return to UK Govt structures, however they are bringing him in. He has been the EU TRADE COMMISSIONER!

    The international trade agenda is a mechanism for handing the world to corporations, if you hadnt realised.

    Though it may have been Brown that overtly invited him back, and it has grabbed Brown some decision making limelight - who would really want him in that position?

    The 500 investment banks of the City of London (2/3 foreign owned) - because he is the man to push the privatisation/liberalisation agenda through in the UK, where the heavyweight EU liberalisation voice comes from, AND into EU policy, for which he is well qualified, connected. And then they get their hands on the service investment - the sort of thing we used in this country to call 'public services' - and everywhere else too.

    By the way, in Brussels Mandelson was heavily criticised by the European Ombudsman for refusing to reveal the lobbyists he was meeting with.

    So - lets get this straight - Mandelson has a total free trade agenda. He is hand in glove wiht international investors. And now he is part of a UK govt structure that will push things through without reference to democracy. That is a huge sign that says 'DANGER' to me.

    Your emphasis is on structural change, and indeed a mechanism to bypass democratic means - justified in the name of the 'emergency' (caused through lack of regulation, I remind) - is very significant.

    But continue - a 'drive-through 'structure to drive through what?

    The neolib provatisation/liberalisation agenda hasn't 'gone way'. When the privatisation/liberalisation shifts are committed to trade agreements they becomes absolutely permanent, and irreversible, ie sold off, privatised, neoliberlised for ever.

    So, no use biting at the edges of a 'socialist revival', wishing and hoping. What is happening under your nose - this heavyweight structure bypassing democracy combined with a free trade merchant in the key position with a straight-through vector to EU policy making, means that any left turn will be precluded from EVER happening.

    Through trade agreements - EU trade policy Mandelson- Trade Commissioner- hallo - get the connection????

    Because the use of Russian imagery carries the the baggage of heavy handed Communist, much more than of some neutral heavyhandedness, and because the underlying thrust could not be further from a Communist anything, I find the use of this imagery unhelpful and misleading in this context. Please refrain.

  • Comment number 11.

    #7 Voodoo

    One man's rational system is another man's voodoo.

    I think we're in for lots of voodoo ( and doodoo) !!

  • Comment number 12.

    benagyerek @ 7 "i doubt very much that they will scrap inflation targeting. it has actually been very successful at dealing with rpi. instead i think there will be a recognition that asset price inflation will need to be dealt with via a new policy tool, probably direct counter-cyclical limits on credit creation."

    Sure. With the Bank of England remaining fully independent, right?

  • Comment number 13.

    I rather think the financial / banking crisis gives Gordon Brown an opportunity to overturn many years of Thatcher-Blair economics and do something much more active.

    Wow. This IS big!

  • Comment number 14.


    no it won't - brown won't be around long enough to see that kind of change through


    yes, preferably. let's see..

  • Comment number 15.

    concerning the 'New Economic Council' (nec) I propose a ROUGH wish-list:-

    ########first measure#########

    The first measure will be to diffuse the tendancy of the  
    so-called 'housing-market' to blow another housing bubble eating-up  
    resources that should go into a productive base. (The lack of  housing and
    the biased  pro-landlordism tenancy laws for 'buy-to-let' is fuelling the
    problem of housing in-equity, generational-lockout and should be
    addressed urgently.)  Steps are needed to permanently reduce housing-cost
    nationally  (this aids national productivity)   and wean the British public
    away from the notion that  buying and selling houses  is a way to make easy
    money.  A house is a place to live.  Moreover the  antiquated  national
    housing-stock in terms of energy-efficiency needs  upgrade/renewal urgently.  
    I thus propose  that   this council should:-:

    1-1) Ensure that the housing minister is an integral part of this economic
    1-2) Put   generating energy-efficient housing and social housing as an
    integral part of  a new economic impetus. Generate such housing complexes
    with/near integrated   leisure facilities such as pools (say 1 per ~30,000  
    population);  these are in fact preventative health facilities so perhaps  
    some synergy/synchronisation with the NHS will be needed.
    1-3) Repeal the  current unsecured tanancy laws that encourages the buy-to-let
    phenomenon, thus after six months of an unsecured tenancy, give ALL tenants  
    in privately-rented houses  secured tenancy- the same rights as secured
    tenants in municipal housing with the legal 'right to buy'.
    1-4) Transfer  all distressed repossessed-houses (with or without occupants)
    into a national social housing pool.
    1-5)  Repair/renew the neglected municipal housing-stock.  Its present state
    is is a squalid Dickensian sink for the underclass  and is  a disgrace
    especially  under a Labour government.

    .... second measure to follow.............

  • Comment number 16.

    why will a bail out cure the credit crunch?

    i thought that credit (a loan) needed the availablity of funds from other peoples' savings.

    Until the savings ratio gets back to a sensible level where will 'real' credit come from?

    There is an awful lot of debt to be paid off before consumers can get back to spending money on day to day consuming again and until then times are going to be very hard.

  • Comment number 17.

    see paul mason's blog. sounds like the war counsel may be used to oversee nationalisation of the banks (when it comes to that)

  • Comment number 18.


    stayingcool (#10)

    Young communists here in the West have tended to be Trotskyites not Stalinists, and such grass-roots 'worker's democrats' have inevitably made good bedfellows of Thatcherite anarcho-capitalists as they are anti-statists.

    "Mandelson said he was "tribal Labour" adding tongue-in-cheek: "Forget all this New Labour ****!" before laughing that this comment was off-the-record.....
    The fringe meeting saw Mandelson also recall his time as a Lambeth councillor, whose leader "Red" Ted Knight's attitude was "No compromise with the electorate!""

    Mandelson on his communist days
    Tuesday, 1 October, 2002, BBC Politics

    It doesn't matter much what people THINK they do, what matters is what they do.

  • Comment number 19.


    dirigisme indeed.

  • Comment number 20.

    find out how interest rates, the primary efficient arbiter of capital – became fallacious and meaningless.

    ...The solution to this part of the problem [rising rates] is where J.P. Morgan's [now] 93 Trillion Derivatives Book swung into action.

    Embedded in every interest rate swap is a bond trade. In simple terms, the greater the volume of interest rate swaps – the greater is demand for bonds to hedge them. Ergo, if enough interest rate swaps are transacted – they serve as a “ VACUUM CLEANER ”, sucking up ALL MEDIUM TERM BONDS [3 – 10 yrs.] in their path.

    In this respect, bond trading volume originating from the interest rate swap derivatives complex overwhelmed and supplanted traditional bond market participants

    What's more, interest rate swaps being “off-balance-sheet items” – an untrained eye [or Bond Vigilante, perhaps?] was none-the-wiser as to why yields were counter-intuitively falling.....


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