Jurisprudence

Joshua Rozenberg ‘Retired civil servants often bite the hand that used to feed them, especially when answering questions from one of their own’

More than six years after Britain invaded Iraq, the battle-lines are being drawn up once again. But this time the theatre of war is no dusty desert. Instead, battles are being fought in air-conditioned London conference rooms where words are the only weapons. The government has now set up no fewer than three public inquiries into its own conduct.

The one that has attracted the most attention is the Iraq Inquiry chaired by Sir John Chilcot, a retired Whitehall mandarin. But on 24 November, the day it started hearing oral evidence, the Chilcot inquiry was virtually written off by the Guardian.

According to the newspaper, the inquiry was going to find it difficult to crossexamine witnesses or decide whether the war was lawful. That was because it had not appointed a QC as counsel to the inquiry and because there were no lawyers among the inquiry team’s members.

Within less than a week, the Guardian was forced to admit that these were hardly fatal flaws. “Contrary to expectations,” it opined, “the mandarins have not pulled their oh-so-elegant punches.”

Retired civil servants often bite the hand that used to feed them, especially when answering questions from one of their own. And having a senior judge to head an inquiry is no guarantee of success. Take, for example, Lord Hutton’s 2004 report into the death of Dr David Kelly, the government scientist who was alleged to have told a BBC reporter that the case for war in Iraq had been “sexed up”. Hutton took a narrowly legalistic approach to his task, dismissing the reporter’s allegations as “unfounded” because they could not be proved beyond reasonable doubt and condemning the BBC’s editorial systems as “defective”.

But you can hardly blame a judge for treating a public inquiry as if it were a court of law. And Lord Hutton’s supposed failings pale into insignificance compared with those of a fellow law lord.

Lord Saville’s inquiry into the events of Bloody Sunday, the day in 1972 when British troops opened fire on unarmed demonstrators in Northern Ireland, is due out this spring, more than 12 years after he was appointed. A previous judicial inquiry into the same incident took just 11 weeks. Nobody seems to know what Saville has been up to since 2004, the year his team finished taking evidence and heard closing speeches.

So ministers were wise to steer clear of the highest levels of the judiciary when picking retired judges to head two other inquiries arising from the Iraq war. Sir William Gage, a former member of the Court of Appeal, was appointed in May 2008 to investigate the death of Baha Mousa, an Iraqi civilian who died in British military custody in 2003.

The Ministry of Defence now “acknowledges with huge regret” that Baha Mousa and his fellow detainees were subjected to “conditioning”—stress techniques that had been banned since 1972. “Ascertaining how it came to pass that they were used is one of this inquiry’s most important tasks,” the MoD’s lawyer said in September.

But the ministry’s failings go far beyond the battlefield. In November, the Defence Secretary Bob Ainsworth announced that Sir Thayne Forbes, a retired High Court judge, would be inquiring into allegations that as many as 20 Iraqi detainees had been tortured by troops at a British base in 2004. At least one of them, Hamid al-Sweady, was said to have been murdered. The MoD says that all of them died on the battlefield.

Al-Sweady’s uncle and five other claimants launched a legal challenge at the High Court in London in 2007. Their application for judicial review was adjourned in the summer of 2009, when the MoD conceded that an inquiry should be held. But that came only after the MoD had behaved in a way that the court described as “lamentable”.

As a result, large amounts of court time and public money had been wasted and the minister was ordered to pay the claimants some £2 million in costs, awarded on an indemnity basis. In an extraordinary judgment, the judges said it was “a matter of great surprise and deep disappointment to the court” that Ainsworth, who had taken over as Defence Secretary a month earlier, had admitted in July that his department had not disclosed the necessary factual evidence—18 months after it had been requested by the claimants’ lawyers.

Announcing in November what he said would be called the Al-Sweady Inquiry, Bill Rammell, the Armed Forces Minister, said the MoD had “nothing to hide”.

If that had been the government’s approach in the first place, there would have been no need for yet another public inquiry into the Iraq war.

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January/February 2010

Standpoint Marketplace

Tim Congdon ‘Ben Bernanke promised Milton Friedman that the mistakes of the Great Depression would not be repeated. Has he broken that promise?’

On 12 July 2002, at a 90th birthday reception organised by the University of Chicago, one leading economist promised another economist of even greater fame: “Regarding the Great Depression, you’re right. We’re very sorry. But, thanks to you, we won’t do it again.”

The leading economist was Ben Bernanke, who at that time had been a governor of the US Federal Reserve for four months. He was making a commitment, on behalf of the Fed, to Milton Friedman that it would not repeat its blunders of the Great Depression. Friedman and his co-author, Anna Schwartz, had shown in the classic A Monetary History of the USA that an almost 40 per cent fall in the quantity of money had been responsible for the drastic plunges in US output and employment in the early 1930s.

When Bernanke made his promise, he could not have known that in late 2008, the US would be confronted by a crisis in financial markets with some resemblances to that of late 1929. As Bernanke is thought to admire Friedman, he would have been expected to follow his advice to prevent a slump. Friedman died in 2006, but every economist knows a key message of the Monetary History. This was that the Fed should have organised expansionary open-market operations (i.e. operations to boost the quantity of money) in the early 1930s and that, if again confronted by a comparable challenge, expansionary open-market operations should be the first item on the agenda.

In the heat of the immediate crisis, Bernanke behaved as if the Monetary History were his favourite bedtime reading. Between September 2008 and January 2009, the Fed purchased hundreds of billions of dollars of commercial paper, causing rapid expansion of both the quantity of money as such (currency and bank deposits held by the public) and the monetary base (the banks’ own cash reserves).

For nearly all his career, Friedman had focused on the M2 money measure as the lynchpin of macroeconomic analysis. In the five months from mid-September 2008, M2 jumped by 7.5 per cent. That may not sound like much, but—if that post-September pace of monetary growth had continued for a full year—M2 would have been up by more than 20 per cent. If the lessons of history meant anything, 2009 would not be like 1930. Full marks to Bernanke and his Fed colleagues.

But, while at that stage of the crisis no one could have complained about Bernanke’s actions, his vocabulary would probably have annoyed Friedman, who waged a war of words against most other economists (and not a few non-economists), with an insistence that what mattered was “money”, not “credit”. He repudiated the claim that bank-lending was important to expenditure by pointing out that a money balance could be spent many times, whereas a loan financed a purchase only once.

In early 2009, Bernanke wanted market participants to know that his objective was not to raise the quantity of money. When commentators referred to the Fed’s asset purchases as quantitative easing, Bernanke tried to correct them by saying that they should instead be described as credit easing. The emphasis on credit had its roots in Bernanke’s academic work, where he had devised a “credit channel” approach to monetary economics. In this approach, little or no attention is paid to the quantity of money and outright sneers are directed at so-called “broadly-defined measures of money”. Broadly-defined money includes all or nearly all bank deposits, with M2 as a leading example.

As 2009 has gone by, it has become increasingly clear that Bernanke is not interested in the quantity of money on any definition. To the extent that he relates practice and theory, his focus is on the credit variables of which he was so fond in his academic work. The nearest contemporary analogue to the quantity of money in Monetary History is actually the very broad measure, M3. The Fed stopped publishing M3 numbers in 2006. But since then, independent analysts at the research firm, Shadow Government Statistics, have put together a private M3 series.

The latest M3 numbers are a horror story. In late 2008 and early 2009, this measure of money continued to grow, but since June M3 has started to fall. The rate of decline has not been as extreme as in the Great Depression (typically about one per cent a month), but it has been at about half of one per cent a month. Has Bernanke broken his promise to Friedman? Will recession and deflation persist in the world’s largest economy? This year will be interesting for the American economy and the commentators who debate its ever-changing fortunes.

January/February 2010

Standpoint

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