Tony Blair is a Great Man

I can’t say I was entirely stunned, because I have always held British Prime Minister Tony Blair in high esteem, especially after his support of our country after 9/11, and another incredible speech he delivered to Congress praising the relationship between our countries.

But in reading this excerpt from his memoir, A Journey: My Political Life, I was taken aback by how forcefully, articulately, respectfully and utterly politely he dismantles President Obama’s misguided policy response to the financial crisis and great recession.

Personally, I have never felt a greater sense of frustration or indeed a greater urge to leadership since leaving Downing Street. I enjoy my new life much more than my old one, and find in it huge purpose. I am fighting for my world view, but in a different manner from that of being in conventional office.

I have tried to gain a bigger and deeper understanding of the world. China is no longer such a mystery, though that is only a relative sentiment. The Middle East is endlessly fascinating and frightening. I see the economy from a broader and different perspective in business. In my two major charitable areas—Africa and faith—I find complete spiritual as well as political satisfaction.

I’m living life full tilt, but I find my old world in a state of despair and feel both shocked and galvanized by this. Perhaps that is because I am removed from it and so think I see it more clearly. (This could be an illusion.) Perhaps it is because some of the bouleversement is directed at precisely what I represented in office: liberal economic policies, market reforms in welfare and public services, and engagement and intervention abroad.

To summarize: I profoundly disagree with the statist, so-called Keynesian response to the economic crisis; I believe we should be projecting strength and determination abroad, not weakness or uncertainty; I think now is the moment for more government reform, not less; and I am convinced we have a huge opportunity for engagement with the new emerging and emerged powers in the world, particularly China, if we approach that task with confidence, not fear.

In short, we have become too apologetic, too feeble, too inhibited, too imbued with doubt and too lacking in mission. Our way of life, our values, the things that made us great, remain not simply as a testament to us as nations but as harbingers of human progress. They are not relics of a once powerful politics; they are the living spirit of the optimistic view of human history. All we need to do is to understand that they have to be reapplied to changing circumstances, not relinquished as redundant.

THE FINANCIAL CRISIS

First, “the market” did not fail. One part of one sector did. The way sub-prime debt was securitized, spliced and diced and sold on with no real appreciation of underlying risk or value was wrong, irresponsible and immensely damaging. Some of the rewards, the huge payouts for shuffling around securities, the bonuses, are not just presentationally awful; they can’t be justified and, at worst, have helped create a propensity to “do the deal” whatever the long-term merits for short-term gain, in a way that significantly contributed to the crisis. All this is correct and should be acted on. However, such practice should not define or represent the whole of the banking sector, let alone the whole financial sector, let alone “the market.”

Second, government also failed. Regulations failed. Politicians failed. Monetary policy failed. Debt became way too cheap. But that wasn’t a conspiracy of the banks; it was a consequence of the apparently benign confluence of loose money policy and low inflation. The responsibility for the crisis should be shared, not borne by the market alone or even by the banks alone.

Third, the failure was one of understanding. We didn’t spot it. You can argue we should have, but we didn’t. Furthermore—and this is vital for where we go now on regulation—it wasn’t that we were powerless to prevent it even if we had seen it coming; it wasn’t a failure of regulation in the sense that we lacked the power to intervene. Had regulators said to the leaders that a huge crisis was about to break, we wouldn’t have said: There’s nothing we can do about it until we get more regulation through. We would have acted. But they didn’t say that.

Fourth, financial innovation is not bad per se. Actually, very often it is good: it increases liquidity and boosts economic activity. The danger lies in innovation that has consequences we don’t understand, and effects which we therefore can’t track.

Fifth, when a crisis occurs—and I suspect this may be true of any significant economic crisis today—its consequences are magnified beyond any comparison with days of old by the supremely interconnected and interdependent nature of the modern global economy. It impacts in its own right; and then the impact is multiplied through that elusive but profoundly powerful force called “confidence.”

The role of government is to stabilize and then get out of the way as quickly as is economically sensible. Ultimately the recovery will be led not by governments but by industry, business and the creativity, ingenuity and enterprise of people. If the measures you take in responding to the crisis diminish their incentives, curb their entrepreneurship, make them feel unsure about the climate in which they are working, the recovery becomes uncertain.

This is even true of the financial sector, however heretical it sounds to say it. Of course there should be a regulatory overhaul, but most of all there should be systems of national and global supervision that enable us to understand this new financial world and to track it, so that we can intervene where the risk of systemic failure demands it. What there should not be is a wholesale attempt to predict every potential crisis and construct rigid rules in advance to prevent it. That way we risk flattening our financial system, squeezing the innovation out of it, trying to return it to the world of yesteryear, which is neither sensible nor economically productive. One result will be that as the banks do less, the state will have to do more. At present, we have gone from irresponsible lending to the other extreme whereby even worthy businesses and customers are refused credit. Indifference to risk should not be and need not be replaced by aversion to risk.

This book just went to the top of my “To Read” list.

Photo Credit: TIME