Monday, 3 October 2011

Whose bust is it anyway?

In 1970, when Augustine Thomas O’Donnell started his economics degree at Warwick, Ed Balls was three years old.

Three years for his undergraduate degree and two years for his MPhil at Oxford – then it was off to Glasgow for Gus, for a four-year stint as an economics lecturer. That gets us to 1979, at which point Ed Balls is 12 and Gus is recruited as a Treasury economist.

He puts in six years in the UK and then fetches up at our embassy in Washington, where he is First Secretary of the economics division for four years, before being brought back to the UK to act as press secretary to John Major for five years, one of them at No.11 and four at No.10. At the end of which, it’s 1994 and and the 27 year-old Ed Balls is an economic advisor to Gordon Brown.

There’s a three-year gap after which Gus becomes our man at the IMF and the World Bank. He is the United Kingdom’s Executive Director to both of them.

Back from Washington, he is appointed both Director of the UK’s macroeconomic policy and Head of the government economics service – every economist in HMG reports to Gus. By 1999, he is responsible for the UK's fiscal policy, international development and EMU and in 2002 Sir Gus O’Donnell, waggishly known as “GOD”, becomes Permanent Secretary to the Treasury.

Labour have been in power for five years by then with Gordon Brown and Ed Balls at the Treasury. Does Sir Gus agree with their policy?

We know the answer to that one. In 2002, he co-edited a book with Ed Balls, congratulating Gordon Brown on eliminating boom and bust, Reforming Britain's Economic and Financial Policy: Towards Greater Economic Stability. A year later saw another book edited by the two of them and Joe Grice, again congratulating Gordon Brown, this time for Microeconomic Reform in Britain: Delivering Opportunities for All.

The end of boom and bust? Opportunities for all? Perhaps, like history in 1989, economics had ended. As Francis Fukuyama almost said: “What we may be witnessing is not just the end of economic cycles, or the passing of artificial economic constraints, but the end of economics as such”.

And so it seemed for a few years, but by the late spring of 2007 the debt markets had seized up. Our regulators – the Bank of England, the FSA and the Treasury – did nothing. Then in October that year, Northern Rock hit the buffers. Our regulators did nothing. And a year later, having run off the end of a cliff, Lehman Brothers made the mistake of looking down, its little feet stopped turning, and economics was back.

Did Sir Gus agree with Gordon and Ed that you can build an economy on nothing but debt, just as long as you’ve got absolutely masses of the stuff? Or was it the other way around? Did Gordon and Ed agree with GOD's economic dispositions?

Sir Gus was so senior, so experienced, so well-connected, so highly regarded. If he had disagreed with his political masters, he could easily have sabotaged their policy. Whitehall are good at that. He could even have resigned. But he didn’t.

Ed Balls had been a very bright economics student at Oxford and Harvard. Gordon Brown hadn’t.

There are quite a lot of very bright economics students at Oxford and Harvard. There is only one GOD.

Journalists give the credit for Labour’s economic policy 1994-2010 to Gordon Brown, but journalists often write or broadcast what they’re told if it makes a good story to suit a political objective. We have no trouble believing that Tony Blair knew nothing about economics. Why do we believe that Gordon Brown did?

Ask yourself that, and each time you look for an answer, you come back to GOD. GOD, who undoubtedly could argue an economic case, in the UK and on the world stage. GOD, who had command of all the troops. And not just the economists. By 2005, Sir Gus was Cabinet Secretary. He was head of the whole home civil service. He was GOD. He still is.

In fifty years time, will historians include Sir Gus O’Donnell along with Gordon Brown and Ed Balls in the team that caused a generation’s-worth of damage to the British economy? Will the honours be shared? Or will Brown and Balls look like minor players, like most politicians in government, manipulated by a disproportionately powerful and consistently incompetent Whitehall? Have we been looking under the wrong stone? Will it by then be GOD's bust alone?

2 comments:

Fulminator said...

O'Donnell's one of the most important members of Britain's nomenklatura, and scarier than most because his activities can't be affected in any way by reverses at the ballot box. Reporting on the unelected great and good in this country is pitifully skimpy - I'm hoping that's going to change now that you're on the scene, Mr. M!

David Moss said...

Eight days after this blog coming on the scene, Sir Gus O'Donnell announces that he's going to step down. GOD this new technology's powerful.

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