Myth-ing the point

17 November 2008 By Martin Hutchinson

The government summit blamed banks and poor regulation for recent financial turmoil. That conveniently overlooks governments’ sloppy monetary policies and meddling in housing finance. As the 1930s showed, incomplete explanations of disaster can lead to decades of bad policy.

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Following the economic summit on November 15, the G20 group of twenty countries assessed the causes of the current crisis, saying: During a period of strong global growth, growing capital flows and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence.

The summit communiqué blamed policymakers for not adequately appreciating the risks building up in financial markets, and suggested that inadequate structural reforms were an underlying factor to the crisis. It did not mention monetary policy or housing subsidies.

Britain had the best performance of all major world economies in 192937. Its fiveyear gross domestic product growth rate of 4% annually in 193237 was the highest since records began in 1856 and has not been equalled since. Real GDP dropped 5% from 1929 to 1932 and then rose 29% from 1932 to 1939.

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