History has a knack of repeating itself, and after the razzmazztazz of Cameron in Zurich, we can now sense that ‘all that glistens is not gold’. The state of the UK economy has been pathologically weak for some time – only helped by some ‘ionotropic’ economic medicine dished out by chief physician Dr Gordon Brown, with capable Specialist Registrar Mr Alistair Darling. The Consultant Brown knew that the currency of Britain has been devaluing for some years now. In an article entitled “David’s Cameron cost-cutting echoes of Thatcher’s last government”, William Keegan writes,

Now the obsession of what increasingly seems like a born-again Thatcher government is with the budget deficit rather than inflation or the trades unions. True, as a result of the massive devaluation of sterling in the past few years, inflation has crept up slightly. But it is still at a historically low level and the main concern of both the Bank of England here and the Federal Reserve across the Atlantic has been fear of deflation, or falling prices.

His patients have been looking on with eagerness. The Specialist Registrar spoke of ‘forces of hell’, which the media loved of course because it detracted them from talking about real issues. A fierce critic of Dr. Brown, Mr. Daniel Hannan, famously used the phrase, “A devalued Prime Minister of a devalued Government”, in this speech, making specific reference to how Gordon Brown should not have spent money on public services, but instead should have paid off the national debt. In my opinion, this mismanagement of the economy proposed by Daniel Hannan, while pompous and elegant, does not acknowledge that economic policy needs to be long-term not short-term. Why then did Gordon Brown not pay off the debt to reduce the deficit, to avoid paying lots of interest in the long-term? Another little cited point is discussed by William Keegan:

The theoretical justification for the attack on public spending in the early 1980s was the putative link between public sector borrowing and inflation, via the impact on the money supply. But, as we have seen, even Friedman, the apostle of monetarism, acknowledged the stabilising influence of public sector deficits in time of recession.

Now, with inflation negligible and the unions long since emasculated, the theoretical justification for the obsession with deficits is the supposed difficulty of financing them. But, as figures in the latest annual report of the Bank for International Settlements show, the UK is top of the league when it comes to the length of time before its debt has to be refinanced, with the average maturity of its debt at 14 years, compared with under nine years for the US and Germany.

The whole speech is here.

If Britain is so terrible, then which country does Mr Hannan admire? Iceland. In 2004, Mr Hannan wrote a polemic in The Spectator magazine praising the country for pursuing a “Thatcherite agenda that is off limits to EU members”. He added: “That attitude has made them the happiest, freest and wealthiest people on earth.” The fact that Iceland’s binge on cheap debt has left its financial system bankrupt and seeking entry to the EU has done little to dim his enthusiasm. In a recent blog, Mr Hannan wrote: “Don’t do it Iceland. Your current status gives you the best of all worlds. It made you rich and free.”

This is completely laughable, given how events panned out for Iceland according to the BBC website:

“Iceland’s economic difficulties became evident in the autumn of 2008 as conditions tightened in the global credit market. Icelandic banks owed around six times the country’s total Gross Domestic Product (GDP) and when the world’s credit markets dried up, they were left unable to refinance loans”

This is simply serial pathology, of the Conservatives trying to replace economic realism with populist fantasy. In 2006, George Osborne was equally “looking and learning” from Iceland. Osborne confidently wrote,

“A GENERATION ago, the very idea that a British politician would go to Ireland to see how to run an economy would have been laughable. The Irish Republic was seen as Britain’s poor and troubled country cousin, a rural backwater on the edge of Europe. Today things are different. Ireland stands as a shining example of the art of the possible in long-term economic policymaking, and that is why I am in Dublin: to listen and to learn.”

Like an Icelandic volcano, the dust has settled, but here’s not to say we’ve got rid of the tremors.