Douglas Carswell

23 MAY 2012

If General Melchett ran the IMF

Remember that episode of Blackadder Goes Forth when General Melchett and the chiefs of staff try to work out how to win the war? 

Having spent every previous episode ordering their troops to clamber out of the trenches and walk slowly towards enemy machine guns, they have a rethink.

After a brief pause, Melchett announces his cunning plan;  Order the troops to climb out of the trenches, and walk slowly towards the enemy machine guns.

Why? Because, barks the general, that's precisely what we've done dozens of times before. And, therefore, that is precisely the last thing the enemy will expect us to do again.

It feels a bit like that reading the tactics that the IMF recommends we use to get our economy growing again.

Ever since the credit crunch hit, the government has lowered interest rates - the idea being that cheaper credit will stimulate consumption and encourage businesses to grow. 

It has not worked. Zero interest rates in Japan did not work. It was keeping interest rates too low for too long, that created the bubble that burst in 2008.  Low rates mean lowering the price of credit, making it less likely that anyone will supply it.  Lowering rates further won't fix things any more than General Melchett's "Big Push" would win the war.

Yet Melchett-like, the IMF recommends that we lower interest rates even further.

Then there is the IMF recommendation that we do more Quantitative Easing. In other words that we print more money and give it to the banks, to try to inject into the system the credit our own interest rate policy is causing a shortage of.  Who knew that we could restore prosperity by simply printing money? 

Yet this print-money-and-pray approach has been tried on a colossal scale and has manifestly failed to fix things. It has puffed up the pile of candy floss credit upon which too much of our banking system is still based. When the inevitable contraction happens, QE will make it all the more painful.

It is no more possible to engineer sustainable economic growth using monetary stimulus than it is using fiscal stimulus. 

The Captain Darling’s in the Treasury might cheer the Lord Melchett approach to economics, but that does not mean it will restore Britain to prosperity.

Even Baldrick could come up with a better plan than what the IMF has proposed.

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