George Osborne today pens a joint op ed in the FT with economics professor Jeffrey Sachs. The article exposes his hypocrisy on financial regulation.
George Osborne today pens a joint op ed in the Financial Times with Columbia University economics professor Jeffrey Sachs. After a series of letters last month from senior economists on the case for slower fiscal consolidation, the article attempts to make the case for faster action on the deficit but has been attacked for attacking “straw men“. It also exposes Osborne’s hypocrisy on financial regulation.
In the recent duel of macro-economists, one camp has called for early budget consolidation, followed by further measures over five years. We agree. Others want more fiscal stimulus, delaying deficit reduction. We believe delaying the start of deficit reduction would put long-term recovery at risk. Such an approach misjudges politics, financial markets, and underlying economic realities.
Blaming our predicament on financial markets, as some in the second camp do, ignores the awkward truth that governments have enabled, if not enthusiastically promoted, recklessness, through chronic deficits and lax financial regulation.
But before the crash, George Osborne believed there was too much not too little financial regulation. For example, at a Chamber of Commerce event in April 2006, Osborne said:
“Regulation too inhibits enterprise. For example, speak to any business in financial services – from the largest investment bank to smallest independent financial adviser – and the threat of future regulation from Whitehall and Brussels is now their number one concern.”
Meanwhile, in August 2007 – as subprime mortgage backed securities started causing a worldwide credit crunch – David Cameron endorsed a report by John Redwood outlining plans to cut £14 billion in in red tape and regulation for UK businesses. According to the Sunday Telegraph, Mr Redwood’s plan outlined that:
“A vast range of regulations on the financial services industry should either be abolished or watered down, including money-laundering restrictions affecting banks and building societies. Mr Redwood’s group also sees “no need to continue” to regulate mortgage provision, saying it is the lender, not the client, who takes the risk.
A recent report by Madano – which analysed the background of parliamentary candidates primarily from the Conservative party – found, according to the Times, that, “The number of candidates running this year with experience in finance has doubled to 10 per cent from the 1997 intake of MPs.”
Mr Osborne is on one side of a legitimate economic debate about the speed of deficit consolidation. But he has no right to make political capital out of financial regulation.
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