Part of the debate – in the House of Lords at 6:01 pm on 3rd November 2008.

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Photo of Lord Peston Lord Peston Labour 6:01 pm, 3rd November 2008

My Lords, one should never wish for anything because one's wish may come true. On the Tuesday after we came back from the Recess, I exploded with rage, demanding a debate on the economy, but was told by the Chief Whip that all the time in the overspill was dedicated to Ministers and that I should forget about it. Then, to my amazement, with virtually no notice, here we are. I have to tell noble Lords that there are nearly 30 more speeches to go and I am already exhausted. I am not saying that we have reached the point of negative marginal utility, but we cannot be far away.

The world has been struck by a major shock, focused largely but not entirely on a banking panic. Our Government have reacted promptly and decisively to intervene and to mitigate its effects. They have acted in a non-doctrinaire way, as is indicated by support for aspects of the Government's policy from all round the House. It is interesting to see how the United States Government have acted in a similar way, as have leading members of the European Union. Most interesting of all is Professor Bernanke, the world's leading expert on credit and credit crunches. Professor Bernanke has intervened in the American economy in, again, a totally non-doctrinaire way. He was appointed by President Bush to be head of the Fed on the grounds that he was a dyed-in-the-wool monetarist, but he has had no difficulty at all in supporting the same kind of Keynesian expansionist policies as we have in our country. That is much to be applauded. If I may use an imperfect analogy, when the patient—in this case, the economy—is dying, you resuscitate him and argue about his lifestyle and what he should have done only when his life has been restored again. That is why the Government's policies have been absolutely necessary.

Despite the intervention, we all agree that in the short term all the leading economies will go below their underlying rate of growth and some—notably the US and the UK—will experience negative growth. There is no doubt at all about that. Whatever the Government's intervention does, it cannot stop that happening or unemployment rising to some degree. That reality has to be faced. It is a double reality because, as has been pointed out, it is often the weakest and poorest who suffer the consequences, but that has to be accepted.

In terms of predicting all this—by which I mean serious economic predicting and not people going around saying "Woe is me" all the time and then, when the worst happens, saying "I predicted it"—I can say categorically that I certainly did not predict what has happened. My view was that there would be a slowdown but I certainly did not predict, say, in May that a recession would occur. Right at the bottom of the blue fan chart in the inflation report of the Bank of England is something that means, "It's possible but completely unlikely that there will be a recession". However, that was not the mean position. The mean position was "clearly slowing down" rather than a recession. I did not get it right and therefore I do not criticise others who may not have got it right.

The question that people keep asking me is whether the Government's policy will work. Because of the expectational effects—the uncertainties and the confidence problems—you cannot say for certain that it will. You can say that you hope that it will but you cannot say for certain that it will. Twenty-five years ago, Professor Bernanke devoted his PhD thesis to the effects of uncertainty on the economy. He demonstrated in some brilliant work that, if you get too much uncertainty, no policy whatever will work. I can only hope that we do not now have sufficient uncertainty in the economy to lead to that conclusion.

In this connection, I notice that the newspapers, apart from discovering Keynes, have discovered Karl Marx. Karl Marx certainly believed that free-market capitalism would destroy itself, but he thought that the route to that would be via the class struggle. He did not believe that it would come about through self-destruction by the leading capitalists. So, in one sense, Marx may have predicted—I hope, wrongly—what was happening, but he certainly did not get the explanation right.

If we get through the current crisis, what will happen next? I wish to make a couple of points in that regard. First, I shall mention the noble Lord, Lord Lawson, who referred to the need to raise the propensity to save. That enables one to focus on the difference between the short term and the long term. An increase in the propensity to save in the immediate future would be disastrous for the economy, because no one would want to borrow those savings and the economy would go not into a recession but into a depression. Equally, the noble Lord, Lord Lawson, is right that, once we get back on track—once we are at what I call full employment—it is vital that we increase the propensity to save. In that sense, we come to the other aspect—