What are Darling and Brown thinking?

I praised Gordon Brown as a person a few days ago. I wrote that his economic plan for banks had precluded meltdown. It did. The problem of under capitalised banks and vast government over borrowing, allied to a ridiculous card-sharp derivatives casino has been the principal transport that has taken this society over the edge. The road it ran on was the destruction of manufacturing industry and the building societies, and vast and irresponsible offers of consumer credit. The speed with which have proceeded to this point was unopposed by any land-based lending of building societies, or alternative sources of investment, such as tax-favoured co-operatives, independently endowed universities, or government-investment schemes such as Ken Livingstone's late plan for tube bonds.

But we are here now. After playing a very good game for the past fortnight, the government seems to have been spun or to have slipped (I can't tell which) into a reckless promise to 'massively expand public works'. They are allowing this to be called Keynesianism.

I've ploughed through Keynes' writing on occasion. I have yet to see the bit where he recommends adding inflation to inflationary situations on the never-never. He did from time to time advocate inflationary behaviour in a deflation--but only in so far as real inflation went to 2% or so. That's not what the government is toying with.

There are real problems, dead Liberal theoretician-financiers aside. The problem isn't just deflation though. Part of the problem has been the development of government over-borrowing the consequences of which have been hidden by confidence tricks such as the private finance initiative, about which I've blogged before.

Indeed, if North Sea oil had not been spent on unemployment benefit and weapons systems, and instead been channelled towards paying off debt, balancing budgets, or swelling the national insurance fund, we would not be in the mess we are in. The oil was peed away, and we borrowed or inflated the gaps in our finances for twenty years, whilst occasionally sucking on a global finance crack pipe to drown out the contradictions.

If there is little money around and the government starts printing cash because it can't borrow except at high rates to fund its new found Keynesianism, we will get inflation.

If all the spending is financed by borrowing, we will get either higher interest rates, crowding out of investment for business, a capital flight, or higher taxes before the end of a long recession. This means inflation and stagnation all at once. The term for that is Stagflation, and its political effects are apt to be toxic. They were last time, in the seventies, at least, and then, society had not been hollowed out and atomised.

And how are these works to be spent? Please God, do not tell me that the government will channel money to private consultants and to private partnership schemes under cover of the Private Finance Initiative.

The government is going to have to start thinking laterally.

Abolish the Department of Culture, Media and Sport. Leave trade to the Board of Trade, and abolish the Department of Business. Prioritise reducing energy inflation by a long-term scheme of developing clean coal, and reopen Britain's mines with tax-favoured cooperatives under a national trustee board. The Universities should have private endowments if they wish, and on those terms the Russell group should be set free. We should consider massively reducing VAT on small businesses.

We should nationalise, under socially accountable trustee boards, the natural monopolies of rail, power and water, and do it by withdrawing subsidies so those brave free market companies can try and last as such. We should develop new nuclear power systems. If the government want to throw money at problems, cancel climate change nonsense and throw the savings at nuclear fusion technology.

If any new oil deposits are discovered in British territory, (say, for example, the Falklands) we should make the money go straight to a protected fund. We should break BAe and the other 'defence' companies so that we can have or foreign policy options back. We should reintroduce building societies, and tie mortgages to land values. We should have a watchword; No more PFI.

That's lateral thinking, and I have a feeling that, along with the abandonment of crazy expensive schemes (like ID cards), we may be on a course towards it. The danger would be to have these things forced upon us by events, or by the failure of vain alternatives.

Stoking up stagflation, however, should not be an option. We are going to have to have some austerity first, whether welcomed or not. Who knows--it may even force people to be sociable again.