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Anorak | The Banks Really Are To Blame For The Economy

The Banks Really Are To Blame For The Economy

by | 31st, August 2011

THE banks really are to blame for the economy.  Although not in quite the manner many seem to think .

The UK economy is currently 4pc smaller than its peak in March 2008 and 2.8pc smaller than in September 2008, when Lehman Brothers collapsed and Britain’s banking industry began its long decline.

Of the 2.8pc fall, the contraction in banking activity has accounted for one percentage point, analysis of Office for National Statistics (ONS) figures shows.

The impact banks have had on the economy is completely disproportionate to the industry’s size. Banks account for just 5.1pc of national output, but are to blame for around 35pc of the national decline even excluding the knock-on effect of tighter credit on businesses and households.

We’re used enough to people telling us it was all the banks’ fault: and they’re right! It is, at least in part, all hte banks’ fault.

However, it’s the next part of the prescription where it all goes a bit awry. For we’re told that in order to stop all of this happening again we’ve got to shrink the banks, tame them, make them subservient to the economy.

That this ignores the very basic idea of international trade, of comparative advantage, doesn’t seem to matter to those advocating this course of action. We do the banking, Germany does the manufacturing.

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Posted: 31st, August 2011 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink

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