"If we begin with certainties, we shall end in doubts; but if we begin with doubts, and are patient in them, we shall end in certainties."
- Francis Bacon
"A good man always knows his limitations."
- Dirty Harry.
If there is just one reason to be wary of the advice of economists, it is the invariable presumption of certainty. Just do X, we are told, and Y will be the outcome. The most influential economic thinker of the 20th Century, John Maynard Keynes, left us with the now hugely ironic observation that:
"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."
Ironic because Keynes, or his ghost, is now the defunct economist-in-chief. Governments throughout the industrialised world have been brought to the brink of insolvency through an unswerving commitment to deficit spending that could be broadly described as Keynesian. For one sovereign entity within a much larger economic system, the approach to insolvency is troubling but can be managed. But when the system itself approaches collective insolvency, the outlook has the whiff of chaos about it. Global banking crisis begets deflationary recession which begets further deficit spending which begets sovereign debt crisis which begets global currency crisis which begets.. ? The government debt and currency markets are not really so different from the banks. They depend upon a critical mass of inherent confidence.
As Liaquat Ahamed cogently but ominously points out in ?Lords of Finance: 1929, the Great Depression, and the Bankers who Broke the World‘ (Windmill Books, 2010), we have been here before. The financial crisis today has a mirror image formed in the 1930s. A vast pile of government debt had been allowed to accumulate (then: as a result of the costs of war; now: as a result of slavish attachment to defunct economics. The mutual characteristic is the malign influence of politicians). The problems of the 1930s were born during the Paris peace conference that ended the First World War. France was determined to make Germany pay. France, for her part, owed money to Britain and the United States. Britain, in her turn, owed money to North America. The global trade system was balanced precariously upon thin strands of interlinked indebtedness. When a banking crisis severed those strands, the global trade system collapsed upon itself.
In December 1930, the Bank of…
