Morning JY! Don't agree (plus ca change!)
Economies move in natural cycles pure and simple. A simple analysis of how and why main policy goals conflict over time (growth, employment, inflation, balance of payments etc) shows why this inevitable.
The amplitude of these cycles varies over time. Boom and bust is not inevitable.
There has been a long debate regarding whether and how governments should intervene to manage these natural cycles.The mid part of the 20c was characterised by cross-party support that governments can and should intervene but the results were disappointing (you are young enough I think to recall "stop-go"). The latter part of the 20c and early this century saw a shift towards less government intervention again with mixed results.
Gov intervention has largely been based around (a misunderstanding?) of Keynes. As Balls pointed out, Keynes is not synonymous with (reckless?) increased gov spending. Indeed it is quite the opposite. Put v simply, K believed that (* see below) that you should attempt to run budget surpluses in good times (reducing the upside) so that deficits can be run in the bad IME (to reduce the downside). So far, so good.
The ultimate folly of Gordon Brown/Ed Balls was to ignore this and to arrogantly claim the end of boom and bust. Instead of moving towards lower deficits, they did the opposite. One result was very unbalance growth on financial services and public sector.**
So when the inevitable slowdown came, the Keynesian response card had largely been played. Oopps! How JMK must have been turning in this grave. So with fiscal policy neutralised, what was left? Ultra loose monetary policy.
So the Tories implement this response at a time when the main transmission mechanism (the banking system) was still screwed. Hmm, so where does all that excess liquidity go? Productive assets? Hardly....
* Actually the irony of ironies (repeated throughout history!) is that the Tories have turned out to be more Keynesian than labour. Why? Keynes did not advocate using fiscal policy first and foremost. Securing lower borrowing costs, to stop defaults from spiralling upwards, was far more important. Without that, there was a real danger more government borrowing would "crowd out" the private sector. Funny that - Osborn turns out to be more of a Keynesian that Balls!
** to be fair, Gordie does get "brownie" points for recognising that fixed exchange rates amplify economic cycles rather than reduce them.