When the credit crunch first hit in 2007, the Western elite told us it was caused by insufficient regulation, market failure and reckless capitalism. It was not. 

The credit crunch came about when markets called time on a massive credit bubble. The credit bubble was itself caused by Big Government deliberately trying to use cheap credit as a short cut to prosperity. From Fannie Mae to the issuing of Italian government bonds, Western governments tried to use debt as a way of spending without taxation. 

Key commentators failed to ask the right questions before the credit crunch, and have failed to challenge the bailout-and-borrow response in Europe, Britain and America since.  

  • Banks were bailed out at vast public expense.  Again and again, I have heard phrases like “too big to fail”. As Gordon Brown moved from one bailout to another, we were told that there was no alternative as we moved towards the New Capitalism - which seems to involved more of the sort of Big Government that landed us in the mess to start with.   

I do not recall the commentatiat putting forward the opposite view, or suggesting that bailouts might simply beget more bailouts. While Ireland nationalised her bank loses, and was financially sunk as a consequence, Iceland let her banks answer for their own misdeeds. Iceland’s economy is now in much better shape than Ireland’s. Maybe I missed the Newsnight and Panorama programmes dedicated to asking if the Icelandic answer might be the better response?

  • Interest rates have generally been kept low – in order to stimulate yet more overconsumption, we are told. Not once have I ever heard any of the economic media pundits question the wisdom of this. Not once have I listened to a commentator on the BBC explain that while higher rates might depress economic activity in the short term, they might allow the build up of credit in the medium term.     
  • Public spending has been kept high , on both sides of the Atlantic, in order to maintain demand. Obama’s massive fiscal stimulus produced little more than a credit ratings downgrade. Our own government has continued to raise public spending – so much so that the state now accounts for over half of all UK GDP. Yet still our commentariat persist in telling us public spending in Britain has gone down. 

Worse, I have yet to hear BBC types seriously question the Keynesian assumption that higher public spending is necessarily a good thing to get us out of this mess.  Here is Robert Peston conspicuously not challenging the wisdom of the fiscal stimulus approach back in 2008.    

  • Taxes have been kept high – or even increased – in order to help close the deficit. Only very rarely have I heard BBC types ask if lower taxes, rather than higher public spending, might not be a better way to generate economic growth.   Imagine the tax cuts we could have afforded had we not increased public spending! How much more competative would Western economies now be? 
  • The Eurozone bailouts ladled water into the boat.  Many EU counties are now sunk. Not once have I ever heard a BBC journalist suggest that in fact the solution might be to quit the Euro and default on the debts.

As the markets plummet, it is the credibility of many of the economic pundits that is crashing down. Much of their analysis of the credit crunch, and the policy responses to it, has less credibility than a Greek government bond.