Broadcasting House, black swans and political humiliation

black swan/white face

07Sep08

I think I’ve gone on before about the emotional and physiological effects that exceptional, unexpected events can have on people: an icy-cold sinking feeling of eviscerated powerlessness, for starters. Such feelings must be especially intense for those who exercise significant power and yet meet more than their match when a complex system turns against them.

Financial markets and wars represent the most severe tests for politicians, who can probably feel pretty satisfied with themselves on a day-to-day basis that some part of the world appears (at least) to dance to their tune. But today, on BBC Radio 4’s Broadcasting House programme, veteran political journalist Michael Cockerell, in partnership with presenter Paddy O’Connell, provided some long overdue insights into those limits of power by joining the dots between the current financial crisis surrounding the Brown government/Chancellor Alastair Darling and previous occasions when proud governments have been forced through the mincer. There are some real insights here for fans of Gordonfreude.

Cockerell has interviewed eight British prime ministers, so is fairly unusual among current working journalists. Today’s 15-minute segment (about 32 minutes into the programme found here on iPlayer: podcast version here) is definitely worth your while clicking through to. It’s also the first time I’ve seen news media challenge the orthodoxy (apparently accepted by most journalism) that the economic problems now facing the UK are mostly a function of external events. Cockerell observes an historical pattern.

For a long time it has been very convenient in Labour mythology to blame the international speculators, ‘the banker’s ramp’, as it was called.

But perhaps more interesting are the personal recollections of Labour Chancellors Jim Callaghan, Denis Healey, and Tory Norman Lamont of a collapse in the pound. This following reflection is from John Major, the then Prime Minister, on Lamont’s demeanour the day sterling was ejected from the European Exchange Rate Mechanism (ERM):-

Norman Lamont came in and he was pretty white-faced and edgy, as well he might have been, and he said ‘It hasn’t worked’ by which he meant the intervention and the two-per-cent interest rise. ‘It hasn’t worked, and they’re still selling.’

The starkest warning for politicians about that experience comes though from Kenneth Clarke, the last Tory chancellor before the current Labour government, and a cabinet member on that Black Wednesday.

We were powerless in the face of events. I think I had always believed theoretically in the power of markets but I’d never seen such a dramatic illustration–felt such a dramatic illustration–that the Prime Minster, the Chancellor, leading members of the government were utterly out of control of events and the markets were going to devalue the pound.”

For the diligent who care to listen to the end, there’s a good line about King Canute.

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4503 Responsesblack+swan%2Fwhite+face2008-09-07+21%3A55%3A11knackeredhack to “black swan/white face”

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1 Tim Beadle on Sep 10th, 2008 said:

Hi Tim,

I’m a little confused. First you say that the orthodox media view (the challenging of which I assume you think is a good thing) is “that the economic problems now facing the UK are mostly a function of external events” but then cite the example of Norman Lamont being “powerless in the face of events”.

This suggests that the orthodox view and the “Banker’s Ramp” Labour mythology are right, doesn’t it?

Cheers,

Tim
2 knackeredhack on Sep 10th, 2008 said:

Tim,

I think the Tory example shows that no colour of government is insulated from market events, but those events are not conspiracies. Ken Clarke concedes the lesson that there are limits to political power that politicians need to understand, Canute style, as did Harold Wilson wryly at the end of that broadcast. And Cockerell tilts at Brown’s overconfidence in claiming an end to boom and bust.

The interconnectedness of our economic and financial systems, and the underpinning technology, increases by the day. To see the subprime market as something foreign is a mistake, it was just one expression of a looser credit environment that had run its course; another was the scale of UK house price rises. For example, I wonder: there may be a counter-factual world in which a collapse in UK housing might itself have triggered some kind of credit crunch, considering Sornette’s analysis that UK housing was vulnerable to a crash well before the US. What held up the UK market for longer? Was it unexpected and unprecedented immigration that underpinned a weakening buy-to-let market two to three years ago? I don’t know. But government clung to the view it was lack of supply, while the Bank of England produced a well-publicised study to say that the link between housing and retail sales had been broken. Maybe. My guess is that subprime was just the first market in which confidence gave way, but there would be other candidates.

I thought this was an elegant broadcast that brought out some key themes using very straight-forward narratives and the first-hand accounts of politicians/elder statesmen. That itself is quite important when one considers that most of our politicians and their advisers now are very young, with little non-Westminster experience.

Tim
3 Tim Beadle on Sep 10th, 2008 said:

Hi Tim,

That’s a lot clearer – thanks. Being powerless in the face of events doesn’t, as you say, imply someone’s ganging up on you; it’s just the Invisible Hand at work.

It’s also interesting that, no matter who gets in power, the financial, trade and political systems at work on a global basis allow them very little room for manoeuvre.

Cheers,

Tim