THE ECONOMY
The locomotive of the Western World
JOCK BRUCE-GARDYNE
The ingenuity of my old colleague and co-author Nigel Lawson never ceases to divert us. Once upon a time, when all the world was young, there was no fairer model of a modern monetarist. No sooner had he secured his seat in Parliament than he had taken up the cudgels against the wilting Keynesians who still held sway upon the Treasury front bench. Poor Jim Callaghan and Denis Healey, trying hard to tack together international strategies involving 'convoys' and 'locomotives' to enable one and all to give a boost to their economies, in the hope that this might help domestically to erase the painful memories of their rescue by the International Monet- ary Fund, felt the force of his powerful scorn. Should their counterparts in Washington and Bonn and Tokyo be so naïve as to listen to their promptings, he told them sternly, the result would be another dose of the inflationary miseries. But of course they wouldn't listen.
And they didn't. Instead Mr Callaghan was dispatched to his farm, and Mr Healey to be interviewed from time to time in the foreign and domestic media, while Mr Lawson presented to our wondering eyes a Medium Term Financial Strategy. Nothing could have been further removed from the half-baked plans of Sunny Jim and Co to stoke the furnaces collectively. The MTFS was designed to drag us up independently, by our own British bootstraps, from the slough of hyper-inflationary despond to the dry land of stable prices in four years or thereabouts.
So it's taken a little longer, and we're still not quite there yet. But essentially it's been a private progress. We may yet save the world by our example: but we have saved ourselves by our endeavours (until Opec came along to help, at any rate). Only now, God bless my soul, what have we here? We have Mr Chancellor Lawson going locomotive. He has devised a Medium Term Financial Strategy for the whole wide world, and presented it in Washington. Impeccable pedigree, old boy. Straight back to Geoffrey Howe and Milton Friedman, vintage 1980. Nothing neo-Keynesian about it.
Not quite the same as the trusty British original, of course. Instead of having pub- lished targets for a declining rate of in- crease in monetary aggregates and deficit spending over the years to come, the new model multi-national MTFS would have `commitments' from the top-drawer coun- tries to given — presumably cheerful, though we are not told — rates of interest, inflation, exchange and 'growth'. All this would have a 'stabilising influence' on financial markets and sustain 'world growth'.
As President Johnson used to tell J.K. Galbraith about that exportable Cana- dian's speech drafts (albeit in terms which could not be repeated in a family newspap- er), this seems to have left the audience in Washington coolish. For when it came to chipping in your actual counters there was a lot of 'after you, Cecil' about. Our Chancellor told the Japs that everyone agreed that they should raise the price of their currency a good deal further, and buck up about it. For which unsolicited advice the Japs promptly damned his im- pertinence — though with oriental politesse. The Germans were told to cut their interest rates, and replied 'Messieurs les Francais, tirez les premiers' — or whatever Germans say to that effect on such occasions. One and all agreed that their American hosts must take their fin- gers out and seriously reduce their Budget deficit — one and all apart from the Americans, that is. About the only point of universal concord, it seems, was that Vice- President Bush, in calling for a parachute for collapsing oil prices, was a very silly billy.
But then maybe the Medium Term Global Strategy was really designed for
'We hold these truths to be sacred and undeniable . .
home consumption anyway. It is, after all, not unknown for Chancellors to preach abroad to domestic congregations. If so, it worked a treat. One distinguished com- mentator. thought the Bank of England was rather shocked by the indifference display- ed by the financial market toward the brisk intemperance of the March figures for £M3 revealed just 24 hours after the cut in base rates ten days ago. Any such frisson was not shared by the Treasury, I'd be bound. For there could not have been a fairer demonstration of the weaning of the mar- kets from obsession with those tired old money numbers. Nowadays what counts is the expectation of tumbling interest rates around the world, with ours dragging behind just enough to keep sterling perky. The Chancellor's much-trailed update on his monetary policy this week had not reached the billboards by the time of writing. But I'd hazard a guess that his message will turn out to have been 'Look east, and west, young men, to falling rates of interest: and don't go losing any sleep about those old-fashioned money num- bers'. And if, in the months ahead, you should happen to be gazumped when you try to buy a house, banish from your mind all thought of too much money chasing too few assets. So it is rather to be feared that the Governor's comments to MPs on Monday will have done nothing to improve the present state of Bank-Treasury relations. `No monetary authority . . . can afford to be indifferent to what is happening to the liquidity of the economy or to its credit counterparts' does not quite strike the note of breezy unconcern Great George Street is aiming at. But worse, far worse, was Mr Leigh-Pemberton's acknowledgment that the Chancellor's proposed five per cent `season ticket' for buyers of American Depository Receipts did seem a little 'puni- tive'. Mr Lawson has enough trouble on that score, with great industrialists writing to the Times, and Mr Walter Wriston denouncing the proposal as an intolerable attempt to extra-territorialise our tax regime — the sort of thing his own admi- nistration in Washington never dreams or doing — without having the Governor come along to stir the pot. But then , suppose that now the Bank has successfully got shot of Johnson Matthey Bankers it feels the time has come to repay the Chancellor's past medicine in kind.
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