Mervyn King: More Common Sense

Bank of Finland, Helsinki. 24th May 2013. What have we learned from the crisis?

Mervyn King gave a speech in Helsinki Finland today just before he takes retirement from the Bank of England in which he said that both austerity and growth were at fault of grossly exaggerated statements to purely political ends:  "This debate has been vastly exaggerated by people who want to make political arguments”. He went on to add that it was a time for common sense.

It comes only a few days after the International Monetary Fund urged the UK to concentrate on growth and stop playing about with austerity measures. So, who is right? King v’s Lagarde!

It’s unlikely that the UK Chancellor of the Exchequer, George Osborne would have accepted the advice anyhow from Christine Lagarde. The IMF advised the UK to increase spending, while Osborne is dead set on steering the country through austerity plans and cutting costs. A change of tack was strongly suggested by the IMF. Now it seems as if Mervyn King is criticizing both the IMF and George Osborne. Neither austerity nor growth measures are doing any good according to King.

It would seem however, that Mervyn King has forgotten the common sense that was failing only a few months ago when he pushed for more money to be printed to inject that into the UK economy. Not so long ago in February, he wanted to pump some £25 billion into the British economy through quantitative easing methods. The struggling UK economy suffered from a considerable hammering yet again when the pound took a plummet after that announcement.  The February split at the BoE brought about a severe blow to the pound on international currency markets back then. It lost 1% against the euro then and 1.5 cents against the dollar. Was that common sense? One might well ask. What is it we say about living in glass houses and throwing stones?

But, King is not all wrong. Of course, talk of austerity and growth are politically-loaded. Of course, they have a political backdrop. Politics and economics are so intrinsically linked that you can’t separate one from the other. But, if politicians were advocates of common sense, then we would have heard about that before, surely. It’s amazing that when people are in positions of power, they believe that they are acting in the interest of the nation and the people in society. When they step down from that position, when they become citizens once again, when they return at (relative) anonymity, they suddenly become lucidly clairvoyant. Common sense, isn’t it?

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