Even when they did begin to accept that there was a recession, Major announced that it would be "shallow and short". Then, to justify his failure to halt it, he told us "if it's not hurting, it's not working" – the cruellest statement made by any 20th century British prime minister. Many people in Britain were losing their jobs and their homes; those who had businesses lost those as well.
Today we know that Major's mind may not have been totally on his job, but that is small excuse for mismanaging the economy. When you spoke to Conservative ministers in those days about the high interest rates that were crucifying businesses, they reminded you of the returns that some Tory voters were getting on their savings. This state of affairs, they said, was good for Conservative savers. Major, believing that he was Saint George reincarnated, sought to slay the dragon of inflation and, in the process, punished almost everyone who had an entrepreneurial streak in them.
Some economists believe that a small element of inflation does an economy good; it forces people to invest rather than merely to save. In any case, the notion of ending inflation once and for all is illusionary. Happily, in today's recession, where the level of orders in the construction industry seems like a plate that has fallen off a table, the government seems aware of what is happening. In truth, Major's idea that you can break the boom-bust cycle does not seem to hold true. The punishment of the early 1990s was in vain, for all that has happened is that the natural cycle of rise and fall has lengthened.
John Major’s mind may not have been totally on his job, but that is small excuse for mismanaging the economy
An economy is like a motor vehicle – it needs to be controlled, driven according to the prevailing conditions. If you ignore the conditions on a road, you wreck your car. If you ignore the conditions of an economy, you wreck that economy. The main difference between the economic situation in the early 1990s and the one today is that then the interest rate was uncomfortably high, now it is comfortably low. The property market, which is tied to the construction market, is regulated not so much by demand as by the interest rate. While interest rates are low, people will always risk putting their money into property. They will invest commercially, as they will invest privately.
Today the recession in construction is driven more by fear than by lack of demand – although demand is not as buoyant as it has been. A recession, after all, is a good time to build; prices are usually cheaper, governments and local authorities, hungry to create employment, will be more obliging with planning permissions, demand will follow with time. Today, however, many large schemes are on hold rather than cancelled; we have in the construction industry a hiatus rather than a disaster. It is strong nerves and fiery courage that are needed in this situation.
Lord McAlpine is a writer and former treasurer of the Conservative Party.