The Unplanned Economy

Part of me wants to rant against the increasingly planned nature of the UK economy, what with the claims that unless the banks go back to offering the lending rates of previous years then they could, according to Mervyn King, end up being nationalised:

“…wholesale nationalisation” of the banks, he replied: “In time of financial crisis, it would be a very serious error to rule out measures which may ultimately prove necessary. It would be an extremely brave person who ruled anything out. It wouldn't be our first option, but remember: the Government now has a majority holding of shares in more than one bank. The United States has just acquired a very significant stake in Citibank, the biggest bank in the world.”

So many different comments to make based on that. The US does own a significant stake in Citibank – but just because they do doesn’t mean we have to do the same thing. And what impact do we think the government threatening bank nationalisation have on the share prices of the affected banks? Is the government purposely want to depress the share value of the nation’s banks? Actually, the answer to that might be yes – they seem hell bent on taking control of as much of the financial sector as is possible.

But this is the whole nonsense of the government position. Yes, they can take control of banks to force them to continue lending at the sort of rates that caused this economic downturn, and that the market is now naturally correcting. But that will not solve the problem. This is a natural economic downturn. Boom and bust is part of the way markets work – the government should look to lessen the worst impacts of this downturn, but it cannot prop up an unsustainable boom. This is moving towards the sort of planned economies that worked *so* well in the old Soviet Union.

Yet can we honestly say that our increasingly government controlled economy is really planned? The debacle over VAT shows that there is very little planning actually happening. The government economic strategy could best be described as scattergun. A coherent, focussed approach to help the economy just does not enter into their approach. The government is frantically throwing ideas against the wall, in the hope that some of them will stick. A charitable description might be to describe the government approach as improvisation; a harsher yet more realistic description would be destructively arbitrary.

The economic situation in this country at the moment is dire. We have a government taking control of private institutions at the same time as showing just how little economic capability or understanding they actually have. We have the unplanned economy – an economy increasingly controlled by a government that is utterly out of control.