Tony Blair on the Panic: Britain’s Former PM Understands the Financial Crisis

The Wall Street Journal — September 2, 2010 — Tony Blair’s memoir, out this week, has so far received attention mostly for the former Prime Minister’s judgments about George W. Bush (remarkably admiring) and Gordon Brown (decidedly mixed).

But Mr. Blair’s clear-sighted views on the financial crisis are considerably more interesting.

In the last chapter of “A Journey,” Mr. Blair writes, “First, ‘the market’ did not fail. One part of one sector did.” Then he adds: “[G]overnment 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.”

Even more importantly, Mr. Blair also notes that “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.” This truth hasn’t stopped the global rush to throw more power at the regulators who failed to anticipate the panic or diagnose the bubble.

On the questions of stimulus, Keynesianism and re-regulation, Mr. Blair writes: “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.”

One can question whether Mr. Blair’s record in office always reflected this sort of clarity. His “New Labour” politics steadily increased the size of government and the regulatory state for most of its time in power. But out of government, at least, Mr. Blair has offered a more compelling diagnosis of our recent—and continuing—problems than most of our current leaders.