Lord Lawson of Blaby: “My Lords, at the heart of this debate lie two questions: how did we get into this mess and, now that we are in it, what should we do about it? I will deal briefly with both.
Part of the answer to the first question is the inescapable working of the economic cycle, which, as Keynes pointed out in the 1930s, is in large measure a creature of the credit cycle. What has greatly magnified the credit cycle since his day is the massive growth of consumer credit of all kinds. The present Prime Minister’s constant boast—even as late as his Budget Statement last year, when the extent of the housing bubble should have been evident even to him—that he had abolished the cycle and put a permanent end to boom and bust, showed not merely astonishing economic ignorance, but it made things worse; for, to the extent that people believed him, and I suspect that many did, it reinforced the unwarranted over-optimism of borrowers and lenders alike. It was an invitation to be imprudent.”
And Lord Lawson concludes by saying
I believe that any plausible, discretionary fiscal loosening would, at best, be of trivial use now while adding to the problems that already lie further ahead on this front. In short, the right answer—in so far as there is one, for the worst recession since the war is now unavoidable—is sizeable interest rate cuts now and, above all, proper banking supervision to prevent a recurrence on anything like this scale in future. And, of course, there should be no more nonsense about the end of boom and bust.