MARY F CALVERT/NEW YORK TIMES
Show Hide image

Ben Bernanke: Austerity went too far in the UK

The former head of the US Federal Reserve says governments "ran too quickly to budget-cutting". 

Ben Bernanke is one of the rare people to emerge from the financial crisis with their reputation enhanced. As the chairman of the US Federal Reserve from 2006 until 2014, he helped prevent a recession becoming a depression through policies such as ultra-low interest rates and quantitative easing (QE). Not everyone appreciated his efforts. “If this guy prints more money between now and the election . . . we would treat him pretty ugly down in Texas,” the Republican former governor Rick Perry warned in 2011.

“I love being a civilian again,” Bernanke, 61, tells me when we meet at the Delaunay café in Aldwych, London. The former Princeton economics professor is now a fellow at the Brookings Institution and the author of a newly released memoir of the crisis, The Courage to Act. At a time of increasing economic pessimism, does he fear another crash? “The risk of a crisis like 2007 is relatively low,” says Bernanke, spooning the froth from his cappuccino. “Banks have much more capital, oversight is much tighter.” The most troubling trend, he says, is “the reaction of the other emerging-market economies to China’s slowdown”.

Though a depression was averted in 2008, the recovery in the US and the UK has been anaemic. Bernanke partly blames the imposition of fiscal austerity (spending cuts and tax rises), which limited the effectiveness of monetary stimulus. “All the major industrial countries – US, UK, eurozone – ran too quickly to budget-cutting, given the severity of the recession and the level of unemployment.”

He criticises George Osborne’s new budget surplus law, which prohibits government borrowing when the economy is growing by more than 1 per cent. “I would be very cautious about putting in rules that would prevent a timely fiscal response to a slowing economy, particularly in a world of very low interest rates.” He adds that “a period of excess labour supply and low interest rates is not only a good time to invest, from the perspective of the recovery, it also makes sense from a long-term productivity perspective”.

Bernanke is also sceptical of Jeremy Corbyn’s “people’s QE”, under which the Bank of England would use newly created money to fund infrastructure, rather than buying financial assets. “That’s more or less equivalent to the combination of a fiscal infrastructure programme and the acquisition of bonds by the central bank. The main objection I have is a governance objection: it’s not up to the central bank to make fiscal policy decisions.”

Once a Republican, the softly spoken Bernanke now describes himself as a “moderate independent”, lamenting the “know-nothingism of the far right”. He argues that “ideological polarisation” has “diminished the willingness of either party to work across the aisle to find constructive solutions”. Has he considered entering politics? “Absolutely not, never. I’m much more comfortable in an analytical environment than a political environment.”

Bernanke is troubled by the level of income inequality in the US and the UK. “It’s not something that can be addressed overnight. It requires sustained effort, for example, to improve the skills and training of those who are not benefiting from new technologies and new industries.”

At the close of our conversation, I ask Bernanke what he regards as his greatest achievement at the Fed. “I hope that our strenuous efforts to stabilise the financial system and to help the economy recover will ultimately lead to the kind of growth and prosperity that we need,” he replies. But, he warns: “The final chapters of that story are not yet written.” 

George Eaton is political editor of the New Statesman.

This article first appeared in the 05 November 2015 issue of the New Statesman, The end of Europe

Getty Images.
Show Hide image

Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.