Once there was, supposedly, a ‘long term economic plan'. How often were those words spun out by Conservatives? It was said do often we all knew what it supposedly meant. It was said that if the size of government spending was cut, mainly by cuts to benefits, and if only the government's books were balanced whilst, at the same time, cuts to taxation for business and a flexible labour market were created then the UK would not just prosper in the aftermath of the global finacial crisis of 2008, but we would all thrive with it.
And now we know that's not true. Don't blame Brexit either. That's just the event that has permitted an acknowledgement of the truth. As the IFS said yesterday, the reality is that there will, for at least thirteen years be stagnant or declining real wages in the UK. As they also pointed out, this may be unprecedented in a century.
So was this an accident? No, of course it wan't. Some of us argued from the onset of austerity (and before then) that in the face of economic downturn austerity does not work. It can't. That should be obvious to anyone. That is because austerity, by definition, seeks to shrink the size of the government. And government spending is one of the four net contributors to GDP. What that means then is that austerity seeks when the other three parts of GDP are in decline to also shrink the fourth. There is one only one possible outcome of that: we get stuck in the economic doldrums at best or we regress at worst. But growth was never an option austerity could deliver. And what that means is that austerity is not bizarre, it is callous.
And we now know austerity really did work out as badly as predicted by the likes of me.
But too many on the supposed left also accepted the logic of austerity. And that was grossly irresponsible of them.
Surely then the case for austerity should now be dead? You would think so, but as I noted on Wednesday, Philip Hammond's new fiscal rule has three components. First the books will be balanced, but we don't know when. So that's austerity forever. Second, debt as a proportion of GDP will shrink. That's a licence for privatisation. Third, benefits will be capped. This is a plan for continued shrinking of the state at cost to ordinary people, and the social safety net. What that means is that austerity is not dead in the Conservative Party despite it having resoundingly failed.
That though does not provide anyone else with an excuse to continue with austerity. The duty of all other politicians is instead to oppose it for one simple reason, which is that it does not work. But to oppose it we have to have a new narrative: a new plan if you like. So what is that?
Its based on an essential understanding that the government has a duty to lead the economy. It does not beg favours from the economy. Its role is, instead, to provide the essential underpinnings for prosperity. That comes down to three things. First is delivering clear government: that is the narrative. Second, ist's about creating the environment in which all can prosper, which requires a socials safety net and a willingness to impose the rules that make that possible. And third government has to provide the money to make the economy go round. It is the government's job to oil the economic motion when banks will not. And it can do that by running deficits when there is less than full employment because that creates no risk of inflation, printing money for investment and ensuring credit is available to those who need it so that growth is not constrained by a shortage of cash in the system, which otherwise happens at times like this and which no one else can make good.
Of course these themes need elaboration and then repetition followed by repetition and then more repetition. But let's make no mistake: there is no room now for austerity economics and for austerity politics in this country. And every politician who cares for the people of this country has a duty to say so.
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and this morning I read in the Guardian…
https://www.theguardian.com/politics/2016/nov/25/margaret-thatcher-pushed-for-breakup-of-welfare-state-despite-nhs-pledge
And they still do
Most people don’t do any form of economics at school so the analogy to a “household” budget sort of makes logical sense. Wrongly as it happens but still “logical”.
It is about time the Left – both here in the UK and the USA (and Europe too looking at the far right storm clouds gathering there) – woke up to the fact that people know something is wrong. The BREXIT vote as well as Trump’s win shows that people have had enough – even though they are unsure of what is causing it because of rampant lying and misinformation from vested interests.
The Left has now got to go for jugular in my opinion and spit it out.
And yes you are right – callous is the word. So why do people still vote for them?
On radio 4 Drive yesterday (about 17:20 ish) there was a discussion about government debt levels – I don’t know if you heard it?
There were two guests and they both were saying that the current debt level is unsustainable.
The point was put to them that the UK had enjoyed periods of great prosperity during times with higher levels of debt (e.g. postwar). They were making a real effort to say whilst that was true it could not be done today and gave various reasons for it.
I was hoping they would have you on there Richard to debunk them!
I did not hear it
I did go in air yesterday, but it was LBC on universal basic income
And I declined money box live as I am not an insurance tax specialist
Unfortunately it takes a long time before such ‘fables’ die – and maybe never. Millions still believe there’s an old man in the sky called ‘God’ and that the human race was originally manifested in its present state. Such people hold considerable sway in many countries especialloy the USA. We still have 26 unelected bishops in our upper chamber!
I’m a tad more optimistic – but not much – about the prevailing economic ideology. As Prof. Michael Hudson has written, and Marx stated, it will eventually destroy itself from the inside out. This may yet take half a century. Until then, the tragedy is (and it is a real tragedy) that millions of innocent lives will be sacrificed on the altar of neo-liberalism. There’s a strong sociopathic aspect to it and I consider it a crime.
How are we going to get to post austerity economics? I mean this ideology of austerity keeps on going. And going. Some people, like your good self, are making a valiant attempt to challenge this narrative but people still believe and will vote for terrible economics. I know that Labour is in a bit of a mess at the moment but Corbyn won the leadership in 2015 because his opponents accepted austerity – and then the membership doubted Smith’s anti-austerity convictions (or that he would be persuaded buy the PLP to drop them). And so Labour is doing terribly in the polls. The Tories would win a snap election!!
Will Blair’s move back into the political arena help? Somehow I don’t think so.
Argghhh!
I know you favour Green QE, Richard, but I would take anything different – eg Blanchflower’s suggestion yesterday that the government should issue a one trillion 100 year infrastructure bond at 3%.
I think you two and others should maybe storm parliament and suggest it? During the middle of PMQs maybe.
Danny is spot on
Richard
FWIW I agree with pretty-well every word in your article.
But it’s difficult to avoid a sense of complete hopelessness. How CAN our so-called rulers go on being so pig-ignorant and just plain wrong, when the truth is staring them in the face! But then, why should politicians display any greater insight than the vast majority of academic economists do?
It’s all happened before of course, after the 1929 Great Crash. Eventually – too late – they stumbled-upon going off the gold-standard and running govt deficits, plus (in the USA) job-creation schemes but still they could hardly wait to get back onto “balanced budgets” again. The war put paid to that and saved them from the consequences of their folly – a rather over-drastic “solution” one might suppose.
It’s been said many times by pundits that what we all – politicians most damagingly – seem to be collectively beset by is a “gold-standard mindset”. Most people just can’t take-in the concept of fiat money: they feel in their bones that there’s something deeply fishy about it, that it’s a confidence-trick.
The irony is that that’s exactly what it is:- it depends for its functioning upon everyone agreeing to accept pieces of printed paper, or (much more prevalently now) plastic cards and numbers held in banks’ spreadsheets, as money – with nothing of what people intuitively think-of as “substantial value” backing it. If that confidence once evaporates nothing stands between us and a barter economy (in other words total chaos). Hence the fetish about running the goverment’s finances as if it were a household, and governments’ not running-up debts they “can’t re-pay”, and all the rest of that nonsense that went out with the gold-standard.
I can’t see any clear remedy for this rampant mis-perception. And altho’ I detest neoliberalism I don’t think that it’s the culprit because the mis-perception pre-dates it by four decades.