The whole of George Osborne's economic policy is based upon his determination to remove the government deficit. Because he also hates all forms of taxation he is determined to do this by cutting government spending and not by increasing taxation in any significant way.
In 2010 Osborne claimed that there was a logic to his policy: he said at that time that we would end up like Greece if we did not cut government spending and tackle our deficit. He was wrong then: Greece was (and is) a country with a desperate shortage of tax revenue because of massive tax fraud and a tax gap that exceeds a quarter of all expected tax revenues and it is also a country with massive economic difficulties from being on the poorer margins of Europe, and a small economy as well, with all that being compounded by being in the Eurozone meaning it had little, or no, effective control over its economic future.
The UK, in contrast, was, and is, the sixth largest economy in the world, has its own currency, is the epicentre of the world's financial trade, has a large tax gap but one that is at least half that of Greece in relative terms, and has the ability to issue its its own bonds in its own currency with there being a strong demand for both, then and now. To compare the UK to Greece was absurd in 2010: now, five years later it makes no sense at all because it is apparent that Greece is surviving, as is the Eurozone despite all its problems, and there is no threat whatsoever to the U.K.'s economic credibility from the current level of its budget deficit.
In that case, because the bond market is posing no threat to the UK, and because the interest rate that we pay on our bonds is now so low that the government can effectively borrow costlessly after normal levels of inflation over the period during which the borrowing is likely to continue is taken into account, there is absolutely no pressure whatsoever to close the government deficit at this point of time.
What is particularly galling is that it is very clear that George Osborne knows this. He imposed significant austerity from 2010 2012 but when it became obvious in that year that the pain that this was imposing was too great he took his foot very strongly off the austerity pedal and the reality is that for the last two years he has let the deficit continue virtually unchanged. The consequence has been that there has been modest growth, even if it has been fuelled by house price increases, and there has been some growth in employment as a consequnce, even if much of it is in lowly paid, part time, zero hour contract work or self-employment, which may pay less. The evidence must be of clear to George Osborne that it has been his willingness to let the deficit run that has created any prospect of growth, at all.
So why in that case is he now adamant that the deficit will be closed?
Firstly, most obviously, he wants to get re-elected. In 2010 he created an economic myth that any Chancellor's ability must be appraised upon their willingness to balance the government's books, even if that means that they abandon any responsibility for governing the country in the interests of all its people as a result. Having created the myth, and having got the Daily Mail and the Daily Telegraph to believe it, he now has no choice but perpetuate it when seeking re-election, even if he has not followed the mantra himself because right now he will be borrowing more than £90 billion this year when he forecast a sum no more than a third of that in 2010.
Second, there is a very clear political agenda to this issue. Osborne does believe that it is wrong for the state to support people when they are in need, whatever the cause of that need might be: there can be no other explanation for his welfare cuts that have hit the disabled, the young, the sick and those out of work through no fault of their own so hard. His desire to cut the benefits cap to £23,000 is further indication of this.
Third, George Osborne is a neoliberal: he hates the state and its intervention in markets even when that intervention is designed to correct market failure to the benefit of everybody in a society. Osborne would appear to have it that such failure does not exist, seeming to instead believe that it is government intervention that creates the problem in the first place. His desire to hit at the size of the state is, therefore, dogmatic.
That desire is also pragmatic: Osborne and the other members of the government are part of what is an undoubted ruling elite that has very clearly run out of ideas as to how to invest the capital that they own to increase their financial well-being and that has also realised that there is a limit to the ability of speculative activity to provide returns on their money without creating substantial economic imbalances which threaten their own prosperity. They have as a consequence turned to the dogma of privatisation and outsourcing to pass the security of the government's own ability to create an income stream in the form of tax to the private sector from which the owners of companies can benefit. Since those company owners do, in no small part, come from the same elite of which Osborne is a member, and the directors very definitely do, then the pragmatism in this policy is one of ensuring that Osborne is feathering the nest of his friends so that in due course they might return the favour to him. I have little doubt at all that this is a major motive for what is happening.
And there is a final reason for the current policy worth noting now, and that is that Osborne wants to destroy the power of government to reverse the cuts in its economic role that he is imposing because he, like many neoliberals, believes that the power of democracy can be used to impose taxation on wealth to redistribute it to those who have greater use for it and he deeply resents this based upon a fundamental class hatred. This is why he is seeking to pass law to ban deficit funding in the future. And it is why he is seeking to destroy the effectiveness of democracy at Westminster by exploiting the Scottish devolution debate and it is why he is to seeking to destroy the effectiveness of the UK taxation system by devolving parts of it to regional governments in the hope that they will compete rates down so that yields can never be restored in future, especially when it comes to corporation tax and wealth taxes. This is why he has also has sought to undermine the power of democracy by creating fixed term elections and (even if he failed on this one) by recasting electoral boundaries.
The desire for austerity can, then, only be explained by a political dogma and not by any rational decision-making process. That dogma is, as is the whole neoliberal dream, based upon a libertarian view of the individual as being of paramount importance, and all other issues, including relationships, society and community well being as not just being secondary but of no importance at all. The measure of success is the accumulation of property rights: their concentration in the hands of a few is not just considered acceptable but as desirable: then the countervailing pressure of government can be resisted.
It is very clear that George Osborne and this government share that view. As a consequence austerity, destruction of the role of government and the undermining democracy all suit their purpose. The totally unnecessary aim of a balanced budget delivered through austerity suits this agenda perfectly, but do not for one minute think that that means austerity is necessary. It is not.
It is essential for the survival of democracy in this country, and for the sake of the survival of our life and society as we have known it, that this political creed be opposed, and that is easy to do. It can be shown that austerity does not work: to some degree current growth is the evidence of that. It can be argued that there is no problem with running a deficit: the financial markets are more than willing to tolerate it. It is obvious that the funding for investment is available: quantitative easing has proven that and inflation has not resulted. If there is a shortage of tax revenue than serious attempts to close the tax gap could be made and, heaven forbid, rates could be raised, starting with corporation tax for large companies. Let no one say alternatives are not available when they are.
What is lacking is political will, at least amongst our mainstream political parties. But if it is not then there is no doubt that alternatives will be sought. UKIP is one response, and a wholly inappropriate one. The Greens are another. And if massive cuts are imposed I cannot see how as the structure of government will, literally, begin to collapse in some areas (as Newcastle has already warned is possible in that City) then protest will not follow and change with it.
Osborne is pursuing a giant political experiment based on class hatred. It is dependent on those of goodwill to promote the alternative.
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Just catching up on your blogs for the day, as I’ve had not time to read them until now. I note a comment from you about having to pull out of an event because you’ve overdone it a bit. Well, Richard, that may be so physically, but intellectually this blog and the earlier one, “Osborne is planning to destroy society as we know it” (which has 36 comments so far and over 1000 tweets) are vintage Murphy: concise, forensic in their analysis and strongly argued. Cracking stuff!
By the way, by now you’ll be aware of the onslaught unleashed on the BBC for the ‘book and doom’ and Road to Wigan Pier comments. I was driving down to Milton Keynes and heard Osborn on the Today programme getting very aggressive on this. I don’t generally have much time for John Humphries, but pointing out to Osborne that asking him questions is not attacking him was spot on. It’s good to see that as of 6.30 pm this evening the BBC are defending the actions of their reporter. I don’t suppose that will last though.
The brain is willing, but I am still suffering physical after effects of anaesthesia
I’ve also recorded for a film and television this week, plus several radio interviews, numerous press interviews and done some work. Maybe it’s fair to be tired
Turning to Osborne, wHat is staggering is He has got to the point where he thinks there is no counter argument. That’s what worries me
I believe austerity to cure economic problems (which were caused by the banks, NOT the government) is merely the fact a fig leaf in order to roll back the hard won gains of the working class, particularly the post-war consensus.
They are out to finish the job that Thatcher started. Sadly, it seems the coalition is more trusted by the public to run the economy despite the fact that the deficit is rising and they have borrowed more money than all previous Labour governments put together.
The government must invest if business refuses to.
NB: Richard – if this still causes problems by bouncing back to your email box, let me know and I will try to contact BT and find out why my email address isn’t working properly.
I agree with you
Email causing no problem today
“That dogma is, as is the whole neoliberal dream, based upon a libertarian view of the individual as being of paramount importance”
No, that’s wrong. For right-wing ‘libertarians’, ‘private property’ (or their weird conception of private property) is more important than the individual.
Enjoyable to read; analytical and compact analysis – clearly identifying Osborne in his ‘break’ to be the front man, the actor and the visionary for the ‘libertarian’ neoliberal movement. Unfortunately he’s gone to the dark side, Osborne was a student in Magdalen College, Oxford (2.1 BA, History) and would have regularly dined under the portraits of King Henry and the libertarian Jeremy Bentham. Bentham’s wisdom spawned famous alumni such as, Robert Owen; this would have not been lost on an ambitious young man to plot his political mark. Most of us do not have these privileges [nay rights] to savour the path to glory. He clearly sees himself as the ‘Saviour’ of British capitalism and identified the state [and citizens] as the burden to be cast aside, regardless of human cost and suffering. From my experience he shows little empathy with the civilians and will bulldoze on with ‘reform’, as the Saviour.
Some thoughts:
1. If all pubic services become privatised — would it be sensible to commit a business to Austerity, by reducing its cash flow? Services generate GDP.
2. One part of this lot’s cost-cutting vision is that there should be no limit to the degree one can de-man. People are part of our capital though, put the capital to use? We are on notice — “Computers and automation can do everything “. Note their ideas on future criminal justice; greatly reduced policing, limited access to justice, slot machine justice, little investigation of fraud (financial and otherwise), destruction of probation, insouciance to caring, etc. What will the armies of unemployed do and what will the future generation do — bloggers here suggest they will man the Orwellian ‘battery farms’ and the streets?
3. What are Osborne and his co-actors real thoughts and agenda, if only? The weakness of opposition i.e. not to confront these policies is exacerbating this extraordinary situation. It is not enough for Labour to sit quietly you must probe, examine, injure your opponent — note Osborne recent hurt to being challenged by the timid BBC, but less timid John Humphreys meekly asking ‘questions’. More power to the Greens.
4. If money = labour (let’s assume a rough equivalence) then the deficit £1.4 trillion would be equivalent to roughly 100 billion hours of labour. Put Britain’s out of work (assume 10 million) into work it would still take 10 years minimum of [hard] labour to offset this sum. It’s logical to find the right work and wage to employ our citizens — too difficult for this lot [I’m told I’m an Utopian]. I thought Utopia where you do not need to labour hard.
5. Investment. If real investment in the economy does not happen, once the state has been bought out, with zero cost money that the few have access to, what is there left for them to invest in; they’ll already have bought back stock? Capital not put to work = ?
BTW – Your illness has sharpened your prose ☺
Great questions
Needing answers
I only leave aside the final comment: on that I have no opinion
These are interesting questions.
For questions 1 & 2, look to the ongoing looting and destruction of Detroit’s public infrastructure, its workforce, pensions and property-holdings. And sanctioned by both main parties and the affected trades union leaderships. All going for profit and “Killers, thieves and lawyers”, in the words of Tom Waits –
https://www.youtube.com/watch?v=OsFyZwFcFHw
Basically – move elsewhere, live a shorter life, and don’t come round near where I live or you’ll be shot on sight.
For “3” – if you don’t even kick at the open door it simply won’t open. Exposing the positions held by Osbourne and his ilk requires only the breadth of ideas and the courage of and conviction in their truth: which no Labour politician has had to the expense of career for generations.
I like “4” – Only solutions that won’t work are Utopian ones. All the others are real possibilities.
“5” I refer you to the song above – “It’s all over” is my take on this. I return to Marx’s oeuvre for inspiration, although he clearly did not write the lyrics.
Capital gets destroyed – usually by bankruptcy or in wars of conquest, or whatever they decide to call them -“humanitarian intervention”, perhaps these days. It’s happened twice in the last 100 years on a mass scale, as we know.
I think this of all your posts is one of the most impressive of all. It lays out in a nutshell what is at stake in our country where re-engineering is taking place before our very eyes. I am convinced that they intend to put policies in place that cannot be reversed and to drive the role of the state to the margins. It was a golden chance for Labour to take to the media and declare what sort of country we want to live in and build a campaign to defeat this elite clique so hell bent on reversing all the gains made for working people in this land.
Now is the time to make this distinction between the Tory elite and the rest of us absolutely clear and offer a viable clearly defined future that will create a more equal society worthy of the age. Thank you for your insightful piece that maintains hope for those of us ranting at the paucity of the response to Osborne et al.
Thanks
It’s not that I don’t have sympathy and interest in some of your ideas stated here.
Where they fall down somewhat is that you probably cannot provided any practical examples of where your approach has worked anywhere in the world, at any place and at any time. (And please don’t drum up the usual historic examples- they are contentious). It’s easy to present untested solutions but probably never having the
responsibility to implement them. If you suggested and promoted pilot projects that could be tested I think there would be more mileage. Get a few more industrialists on your side, and I would be more convinced, rather than the usual arm chair critics.
I think you’ll find I am talking the UK from 1945 to quite recently
It’s Osborne who is trying something untested
Cuts of this scale have only ever happened after a war
We have never had a post war economy with the level of spending he plans
Sorry Stephen – but your argument is utterly meaningless in that context and does not become you
@Stephen Griffiths. “Armchair critics”? I recognise some visitors to this website, many are very active in politics etc, myself for over forty odd years. I for one have been an ‘industrialist’, run a Ltd company – managed and responsible for delivering multi million £ projects.
Thanks for this, Tony-B and Richard. Per the views of Stephen Griffiths as to “untested” and “not succeeded anywhere in the world”, two observations:
1) William Keegan’s critique of Thatcher’s “dismal experiment” with the economy was partly that it was untried and unproven;
2) However, his second argument was that it would prove disastrous, as indeed turned out to be the case – without North Sea oil the UK really WOULD have approached bankruptcy with her policies, and even with it, she left a HUGE government debt to her successor.
Indeed, neo-liberalism has similarly proved an unmitigated disaster (for thecordinary 99%, though not for the feudal elite, hence their support for its lunacy) wherever it has been tried – think Pinochet’s Chile, which had to reinstate Allende’s policies to prevent economic collapse.
So let’s not have this tired criticism – on a par with “don’t frighten the horses” – of economic thinkers who are seeking to back us out of the societal, economic and humanitarian cul de sac into which neo-liberalism has marooned us.
Andrew
You are right
From 1945 to 1973 we had stability and almost no economic downturns
Since 1980 such downturns come along almost as often as rural buses – infrequently but nonetheless regularly and more often that legend would suggest
Bravo and hear, hear. Not the first, but the most, passionate blog you’ve written in my opinion.
Perhaps a speech for the Eds based on this blog should be drafted and sent to them (and the press?) because they very clearly don’t have a clue what to say to the electorate. Perhaps some of the regulars on here could help with you as editor-in chief (so that you don’t have to take on more than your health/strength tells you should).
Brilliant!
Thanks Nick
I need to finish the book first
70% done but late now….
“This is why he has also has sought to undermine the power of democracy by creating fixed term elections and (even if he failed on this one) by recasting electoral boundaries.”
How is recasting electoral boundries to iron out a current inbuilt bias towards one party undermining democracy? No doubt you are only stamping your feet about this because it would favour the Tories.
And no doubt you would be stamping your feet had the coalition NOT adopted fixed term parliaments and then called a snap election at some piont favourable to them.
Any true supporter of democracy would put party aside and accept that a recasting is needed to make the system fairer.
In 2010 the Tories got over 1,000,000 more votes than Labour got in 2005 yet did not get anywhere near the number of seats. How is that good for democracy?
I respect the Electoral Commission
I think elections should be called when the Prime Minister thinks it appropriate with a five year maximum
I am not sure what point you are seeking to make
@Geoff – cannot help noticing how you sedulously skate over the other half of Richard’s quote, concerning fixed-term Parliaments, and concentrate only on the boundaries issue.
Well, in my view, the fixed-term Parliament was both the greater, and the clverer, gerrymandering stitch-up of our Constitution.
It was cleverer, in that it could be so wonderfully presented as an extension of democracy – taking away the quasi a monarchical power of the Prime Minister to call an election when he or she judged it electorally best suited to his or her Party’s needs. This “democratic enhancement” was further “enhanced” by giving the Commons the right to decide on dissolution.
And here is where is is a GREATER stitch-up: for the Commons have ALWAYS had the right to decide on dissolution, which they did by a vote of No Confidence. The loss of such a vote meant a Prime Minister was forced to resign, and was expected also to call a General Election, though the Queen could, on the outgoing PM’s advice, call someone else to the Palace, and ask them to form a Government.
The first option, loss of a No Confidence vote and a General Election, was that followed by Jim Callaghan in 1979. The second, that of calling someone else yo form a Government, was followed by the Queen after the February 1974 General Election.
Things are now RADICALLY changed by the Fixed Term Parliament Act, in that the vote of No Confidence only acts to remove the Government and NOT the Parliament, which must vote BY A 66% MAJORITY for dissolution!!!
Imagine this had been in place in 1979: Jim Callaghan could have sought to fettle up a different coalition of support, and have carried on till October 1980 – and perhaps then have won a General Election (If only – “vae victis” (Lucan’s Civil Wars “woe to the conquered”).
Equally, imagine Cameron had lost a vote of No Confidence now: would the LibDems vote for dissolution? Do turkeys vote for Christmas? So Cameron would just fettle together yet another malodorous coalition, SURELY bringing in the two turncoat UKIP MP’s into the Cabinet, with a massive lurch to the Fascist Right, something clean COUNTER to the wishes of Parliament, and probably also the country.
The Fixed Term Parliament Act actually REDUCES democracy – something I had to explain to a Facebook site calling for a Vote of No Confidence – the page seems now to have vanished, once the instigator understood that a lostcNo Confidence vote would NOT necessarily lead to Cameron’s resignation.
Truth to tell, the Fixed Term Parliament Act should really be called The Zombie Act, since it permits the living dead to carry on functioning at will!
Andrew
Thanks, and well argued
I agree
Richard
Nice analysis, and phrased in an accessible way that I can explain it to others.
The ‘soundbite’ I’d take from it is that fixed terms permit the existence of an ineffective Parliament.
The only criticism I would offer is that you look upon an ineffective Parliament from within the walls of Westminster: chaotic instability and policy paralysis, hijack by repellent minorities, odious coalitions that operate without electoral mandate.
What of the world outside? A chaotic Parliament of unstable coalitions cannot formulate a consensus of core policies and implement them as a government. But it can and does respond to ‘policy initiatives’ from any wealthy individual or company who can influence a third or more of the MPs.
Further, whatever status quo exists – however damaging it may be – is locked in place: it’s always easier to block legislation that to enact it. And there are always monopolists and wealthy individuals (and, these days, the security services) who benefit from the status quo, no matter how pressing the need for reform or democratic scrutiny.
That’s the visible danger of an ineffective Parliament.
But what of the hidden world of workarounds and fixers and words-in-right-ear of people who get things done?
A country still runs, and it’s never true to say that ‘no-one’ is running the country.
Thus, monopolists come to dominate the economy, and monopsonist cartels grind down the small suppliers of goods and services and labour; and, when no-one’s looking, basic freeedoms are eroded by pervasive surveillance, blacklisting, and the wholesale misuse of personal data for profit.
An ineffective Parliament is an effective ‘Do as thou wilt shall be the whole of the law’ to those who can exercise power without the walls.
Interesting ppoint
Belgium did survive without a government for over a year
No doubt some vested interests did well
I accept the accusation that I am assuming democracy is of benefit and might even on occasions work
The proof of Osborne’s hypocrisy:
http://www.huffingtonpost.co.uk/2014/12/03/george-osborne-deficit-charter_n_6260286.html?1417607059
Very good
The FT recently described George as “the last whig” in a positive article.
I don’t think that begins to describe him. He believes, economically, in absolute license. anyone can do anything.
I don’t think many people, going back over 3000 years, have advocated that approach to life. The only ones I can think of are Ayn Rand, William Burroughs & Aleister Crowley.
Now, by any reckoning, they were head cases. I mean I like & admire some of Burroughs’ work, phenomenally disturbing though it be, but he really wasn’t sane & his best friends (Ginsberg & Kerouac) accepted that.
When a horrified Kerouac asked why his work kept coming back to pre-pubescent boys being hanged in limestone caves, Burroughs explained that he was only channeling the thoughts of his inter-terrestrial masters but admitted the signals kept getting mixed up.
Rand wrote books that, unlike those of Burroughs, were of applying quality & ended up going certifiably mad.
Crowley claimed to have become an ‘adept’ but, like Burroughs, was never able to conquer smack addiction. He claimed to have turned a, rather low grade, futurist poet, into a camel. The futurist poet was subsequently seen around Pall Mall in recognisably human, non-cameliford, guise.
So, George, if you are serious about this whole libertarian schtick, who are your guides on this journey your plunging us all into eh?
In the comments on Rand “applying” should, of course be “appalling”. Damn that auto-correct