As we come hard up against the next BoE decision to raise interest rates, it struck me that in creating the infrastructure that he has in the last 7 years, Gordon Brown has effectively placed the UK into the heart of a controlled Keynsian economic experiment. When Hayek wrote his classic Road to Serfdom, his attack on the very idea of a managed economy centred around the concern that only the "worst" people would come to manage command and control economies. In his well known letter of reply, Keynes completely misses Hayek's point and dismisses the danger of this provided that control were restricted to the "right people".
This says a lot about Keynsian thought as a political as opposed to an economic credo, but what is interesting is who these "right people" were. One of the arguments about China's loss of relative economic power in the post war era is that the ruthless efficiency of the Chinese bureaucracy in regulating its economy to a grinding halt. By contrast, the more liberal minded economic leadership of the west tended to avoid getting involved with the messy business of business (although Wilson's government came closer than most).
Brown, though, is a different matter. Having taken on board the idea that he is clearly one of the "right people," he also takes forward the concept that the business cycle is to be stabilised by government intervention. He may have granted "independence " to the Bank of England to set interest rates, but as long as he effectively controls the growth of money via the monetisation of debt and the use of "government" money to boost public sector demand, he is still in charge of Monetary mismanagement. Worse than that, with at least some constraint in money creation by public comment and market response - he is command and control directing the resources in the economy - via the tax system - towards the unproductive area of the economy and away from the drivers of growth and wealth creation.
Having inherited a "good economy" in 1997, the Keynsian Chancellor has assumed the mantle of being one of the "right" people to perfect the ideal Keynsian command economy. With a Bank of England that clearly feels the need to try and address short term problems (house prices) with monetary policy, they are simply using what should be a long run operating instrument to try and offset the control implications of the fiscal meddler. Like post war China, the UK is heading for a perfect, Keynsian economic standstill.
