Austerity is as close to political madness as any policy gets. What it guarantees is that things that could be done are not done, and that is bound to lead to political failure.
This is the audio version:
This is the transcript:
Economic austerity is as close to political madness as any policy gets.
So let me be clear what I mean when I talk about austerity. Austerity is a policy that a government puts in place knowing that there are things that it might do, but which it decides not to do because it is instead trying to balance its finances to control its supposed debt that people have placed with it. This is what austerity is.
I know Rachel Rees will not agree with that definition.
I know that there are others who might dispute this, particularly in the Labour Party, but if you stand back and look at what most economists say, my definition that I just offered is pretty consistent with the mainstream view on this issue. And, for once, I'm happy to be in that mainstream.
Austerity is then a policy that is about not doing things, and that is what is really important to understand about it.
The potential to do something - fill in potholes, build schools, run a green strategy, pay benefits, all of those things - could be done, but the government has decided not to because they think that doing so might increase its debt and therefore they won't deliver that policy, which is an option that is available to them.
Now, once upon a time, the great Lord Keynes - the person who I think to have been the most significant economist of the 20th century - said, “We can afford whatever we can do”.
I believe he was right. He said that in 1942, in the middle of the Second World War, and he said it for very good reason, because he knew that we could defeat fascism. We had the capability to do it, and therefore we would eventually be able to afford to do it because if we were doing something about which we agreed, the funds that would necessarily be required to achieve that goal would follow from actually undertaking the task.
In other words, the government's funds are created by doing things and not by extracting value from things that other people do or don't do, and this is absolutely fundamental.
The government is not some bit part player in the economy.
It isn't like a micro business.
It isn't like an individual.
The government actually runs the macroeconomy of a country.
It isn't constrained by the availability of money in the economy because it makes the money in the economy.
It isn't constrained by its inability to command resources in the economy because if it decides to do so, it can buy any resources that it wishes within the economy, provided, of course, they are available. In other words, it can't hire a million brick layers if there are only half a million brick layers in the country, but it could decide to train the other half million brick layers it wants if it can provide the necessary incentives for people to go on those courses and then pay them sufficient money to persuade them that's a good idea.
In other words, the government can change everything if it so wishes. That's its unique role, and yet the whole policy of austerity is run around the idea that it is constrained by debt.
So, let's be clear what debt is. Government debt is sums that people have placed on deposit with the government because they want somewhere safe and secure to put their money because nobody else can guarantee to repay a sum of £2.7, or nearly £2.8 trillion, which is the supposed value of national debt outstanding at the present point in time - although in reality it's only just over £2 trillion because over £700 billion of that £2.8 trillion is actually owned by the Bank of England. But the point is the government can guarantee it will always be able to repay that money and no bank can, and therefore people save with the government.
That's all the national debt is, and if people don't want to save with the government, so be it.
The government can still create the money it wants - it can borrow it from Bank of England and pay them interest on the sum as well, if it so wishes. But remember, they own the Bank of England and therefore the cost is absolutely net neutral.
And this has happened many, many times in our past, most recently until 2006. So, there's nothing very radical about what I've just said either.
So, the point is why do we need a policy of austerity, which is actually consciously denying us the opportunity to do things because some savers may not - and I stress the words, ‘may not' wish to give their money to the government when historically, whenever the UK government has over a period of 330 years offered its bonds or savings products to the economy they have always bought them.
It's very hard to work out why anyone would believe that this is a sane economic policy.
The government has never failed to sell its bonds.
There are things to do.
We know they're undone, and we know the resources to do them exist in the economy, and yet because of a microeconomic perspective of what is going on, with the government believing it is just like anyone else in the economy and constrained by such things as the availability of money, which it actually makes, it will not do what is possible.
Why would a politician want to do this? That's very hard to explain.
The only possible reason is they actually believe it is necessary. And in the case of Rachel Reeves, I'm sure that is true. She went to Oxford University. She did a degree there called politics, philosophy, and economics. You will note that in practice, only one-third of that degree was in economics. It was, therefore, pretty basic stuff. And in that pretty basic economic teaching that she had, she was told that the government does behave like a company, or it does behave like an individual, which is why she keeps on referring to the fact that she remembers her mother balancing the budget on the kitchen table when she was young, as if that is the role model for being chancellor when it isn't.
So, she believes something that is fundamentally untrue. She does that because she was taught it incorrectly at Oxford University by professors who promoted this idea as part of neoliberal economics, the whole goal of which is to constrain the role of government - in other words, to make sure that things that could be done are not done, even though people would benefit from them if they were done.
That is what neoliberal economics is about.
It is about incapacitating democratic choice because we are being denied what is possible.
If you think that's a good choice, you will agree that Rachel Reeves should now be delivering austerity.
If you think the government should do what is possible to the limit of that possibility for the people of the UK because that is what a good government should do, then you will disagree with Rachel Reeves on austerity. You will think she's making a mistake.
I do think she's making a mistake. I think that she has got this fundamentally wrong. The policy of austerity that she is now adopting just to comply with the fiscal rule that she made up - which nobody cares about, and which is also bound to fail - that policy is going to cause us harm.
It's also going to cause her harm because I suspect she will not be Chancellor for long if she carries on like this.
And it will cause the Labour Party harm because I can't see how they can be re-elected if they continue in this way.
As I said at the beginning of this video, there are very few policies that are harder to understand in politics than austerity, but that's what Rachel Reeves is doing, and as a consequence, she is setting out to fail.
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I was wondering when austerity began and found this from the budget speech from Gordon Brown in 2002:
I now turn to the public finances.
Our fiscal rules are set not for a year or even two but for the entire economic cycle.
And because from 1997 we tightened fiscal policy by 4.5% of national income, we have been able to reduce net debt well below 40 per cent, not just in one year but across the economic cycle.
So, while the Pre-Budget Report showed that tax receipts were 7 billions less last year – and 10 millions less this year – than forecast because of the global economic downturn, the underlying state of our public finances remains strong.
In the year to last April we repaid 37 billions of debt.
Searching before that isn’t easy without academic resources but it does show that the UK has been suffering this new label called austerity from Chancellors for coming up to 28 years now.
True
Agreed.
I have asked the question previously on this blog as to when – since Thatcher – there has NOT been some form of austerity in Britain?
Having read Clara Mattei’s ‘The Capital Order’ (2022), perversely we need to just stop and think a minute. We know austerity does not work – Mark Blyth made that clear. But Mattei reifies that austerity is not meant to work and how and why. And more importantly isolates why it keeps being used. And it is nothing to do with stupidity.
I totally agree that Reeve’s austerity policies are stupid. But only because she keeps talking about growth. Now some growth will take place during austerity but not the sort she keeps talking about – not under the austerity measure she is proposing. I will come to that in a moment.
Mattei’s account of austerity – emanating from fascist Italy – is compelling. There is a design, an intent and outcomes that austerity delivers on purpose.
From what I can see from Mattei, austerity is a political project aimed at changing power structures in society. It is authoritarian in nature – associated with Mussolini – and definitely in the Right Wing camp, created by people (economist, politicians) who think that they are born to rule, are pre-ordained to do so, have the right, are ‘worthy’ where others are not. Frankly, this group just want the output of the economy for themselves. It’s about economic gains through exclusivity by ensuring the exclusion of others. Remember that. In that sense, you can see why the Nazi’s were so obsessed with robbing gold and art; how the Neo-liberals work through the law to weaken opposing economic positions – they are ALL on the same rationale continuum.
Austerity is very crude actually – it’s about cutting off the money that drives good things that exist and then knowingly watching things wither and fall to pieces as it is taken away (cuts and tax increases). Cut off the blood supply to a finger and see what happens. This is where the cunning of austerity or its ‘unreason’ kicks in.
‘Good things’ that exists are decent wages, which leads to disposable income that leads to having somewhere to live, a means of transport, health care, judicious/fair taxes, regulations and protection, able to be part of a union and organise for political representation, to a certain level of happiness and contentment, autonomy and peace with one’s neighbours – all the things that are used to sell the value of work to us. All these – and more – fail under austerity as life gets harder.
So, as a result you have mass of people whose lives become messier and more disaggregated, each life becoming a desperate personal individual fight for survival. A mass that is easier to manipulate, whose souls can be moulded (thank you John Gray) by the Mussolini’s, Hitlers, Thatchers and Trumps of this world (should we add Reeves or Starmer? – to me they are already instantly forgettable).
So coming back to the growth issue, which is prima facie really stupid, the fact is that austerity also helps to move money around the economy to the top of society. So really , Reeves is signaling not to the likes of you and me that we will get the growth WE want; she is speaking over our heads to the rich whom she thinks will get the growth THEY want. Be warned BTW, more of our public services are up for grabs – will the Land Registry cop it this time?
The things is, that this country was in such a mess when Labour came to power promising change and they have done nothing to change that really . The infrastructure is increasingly worn out; wages and benefits still too niggardly; it now costs more money to employ people, interest rates are too high, debt is too high which is very risky.
So to be honest, I don’t think Reeves has a chance. Austerity is now deeply embedded in the Treasury and other Whitehall departments because it is part of the mechanics of increasing marketisation, a rolling back of the state to be nothing more than a market facilitator. I think the rich will just sit back and see what public owned morsels come their way – again. Real get up and go people however will look at Labour’s employment costs and just not bother.
The easiest answer is that austerity as an economic measure to boost the economy for society as a whole is indeed stupid, but not so stupid if you are rich. But its social effects are nothing short of revolutionary and intended and to some, (like Thatcherites who think it was the British people who needed our ‘souls’ reengineering) it is desirable and will be done.
What we are witnessing I would argue is simply the messiness and self contradiction that comes with neo-liberal thinking, where 2 + 2 = Fish, where ultimately there are no socially beneficial values under-pinning any of it’s supposed intellectualism. And the rich – who remember are different to most of us, and whom increasingly fund our politics could not give a damn. They will go on winning at our expense.
Thanks
Apologies for delay
Blame birdwatching
Very very good PSR. An excellent analysis/story line. The only question is: how to oppose. Obvs tumbrils etc are unlikely. So how to get the changes we need, given current structures.
For all her talk of “stability” and “fiscal responsibility,” Rachel from Accounts offers nothing but a continuation of the same failed orthodoxy that’s gutted the UK for over a decade. Under Cameron, austerity was brutal and explicit. Under May and Johnson, it was hidden behind slogans while public services quietly bled out. Under Sunak, it’s become technical—a fog of spreadsheets and interest rate spin masking the same abandonment of responsibility.
Reeves, far from challenging this consensus, is embedding it even deeper. Her fetish for fiscal rules, her refusal to tax wealth, her silence on crumbling local government and public sector pay—this is not the language of renewal. It’s the same neoliberal playbook that has prioritised bond markets over broken communities.
She talks tough on economic credibility but stands for nothing bold. No real investment plan. No ambition to rebuild. No recognition that the state must lead in a crisis. She’s not offering hope—she’s offering continuity with a softer tone. Strip away the rhetoric, and she’s just another Tory who happens to wear a red rosette.
This isn’t caution—it’s betrayal. At a moment when bold, transformative leadership is urgently needed, Reeves is choosing managed decline. She may call it prudence, but history will remember it as complicity.
Which do you think will come first:
A) that Labour MPs (Parliamentary Labour Party) will save its skin by sacking Keir Starmer
B) that Keir Starmer saves his skin by sacking Rachel Reeves, or
C) that Rachel Reeves will will save her skin by turning from her current course, (Neoliberal/Treasury orthodoxy)?
Or is this all based on a false premise that MPs will not be alarmed by their constituents’ concerns when the pain of austerity is felt by the poorest (or by the results of mayday Runcorn and Helsby by-election)?
B
Maybe one day we’ll have a Chancellor who seeks to be guided by truth rather than certainty. KUTGW.
In his book “Austerity – The History Of A Dangerous Idea” (2013) Mark Blyth writes:
“As pro-austerity advocate John Cochrane of the University of Chicago put it, “Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both.” 2 There is just one slight problem with this rendition of events: it is completely and utterly wrong, and the policy of austerity is more often than not exactly the wrong thing to do precisely because it produces the very outcomes you are trying to avoid.”
Austerity is based on unfounded ideas. I think we all know that austerity benefits only the well-off.
This is so wrong it is madness
You make the important point that Rachel Reeves’ tertiary education, comprising P. P. E., was at Oxford University and that it has affected/controlled her thinking as Chancellor, to the detriment of our country.
Such is explained and amplified in the book “Chums: How a Tiny Caste of Oxford Tories Took Over the U. K.” by Simon Kuper.
Below is an article about it
https://www.theguardian.com/books/2022/may/01/chums-how-a-tiny-caste-of-oxford-tories-took-over-the-uk-by-simon-kuper-review
Very good book.
Austerity is not only the politics of madness and crass economic stupidity, it is also the politics of serving capital. The politics of a detached political elite that has neither compassion nor empathy. A government of individual people, for that is what they are, that cannot find the kindness and compassion within themselves to prioritise and provide for 4.5 million children living in poverty over and above the interests of capital, especially when they have the capability and the tools at hand to do so. This government is morally and ethically bankrupt and will fail because the root foundations of the individuals responsible are rotten. Their actions and policies are the politics of people that do not care about the plight of the citizens they have been elected to serve and are responsible for.
I once heard PPE at Oxford described as a “bluffer’s degree” where the students were not taught any of the three constituent subjects to any particular depth. I have always been amazed at why the political world (including the political media) places such value on this degree. Is it not time to critically assess the content of that degree, who teaches it (including the personal biases of the tutors) and whether it has any real practical value. I recall Gary Stevenson’s scathing criticism of many university economics tutors (especially at Oxford and LSE) and them not having “a Scooby” about how economics in the real world works. It seems to me that Rachel from accounts is just a very average product of that PPE system. Why else does she bang on incessantly about her “being an economist” as if her Masters and limited time at the Bank of England (then in customer relations at a high street bank) unless she actually feels out of her depth? Is she suffering from sort of economist imposter syndrome or does she know, deep down inside, that she lacks the qualities that required for the job but is too arrogant to admit it. Mind you, I do wonder also about the background training and competence of the current governor of the Bank of England.
Much to agree with
And all these politicians have not an iota of real world management experience between them.
given your opening statement (madness etc) then should this
” you will agree that Rachel Reeves should now be delivering austerity”
read instead:
“you will agree that Rachel Reeves is now delivering insanity”
LINO are done for:
a. they are authoritarian (ref Quakers blog & other bat-shit barmy stuff by an out-of-control plod force)
b. Reeves has no macro understanding & is thus delivering economic insanity to the country
All under the watchful eye of McSweeney who I suspect is barely numerate (he can count – apparently).
I can’t rewrite my recordings
You can!
This government chooses to govern the country by choosing all the things it doesn’t want to do.
That’s no way to cope with and counter the effects of Trump in the US and Putin in the East.
We need our government to take a positive attitude, by choosing what we in the UK want to happen and then going for it. What they have chosen is, in my view, government by failing. And governments with a record of failure don’t get re-elected.
The choices for 2029 then, at present, are grim.
The qualifications of the governor of the Bank of England should indeed be questioned. He doesn’t even have the Mickey Mouse PPE. He has two degrees, both in History. Explains a lot.
‘I know Rachel Rees will not agree with that definition”.
Austerity already has a definition, well understood by economists. Changing the meaning of something to suit your political agenda, which is deliberately designed to mislead people, is not the actions of someone keen to explain the truth to people.
Why not invent a new phrase for the concept you are describing, to avoid confusion?
What you be happy if people started using the word ‘poverty’ only to describe those who were destitute, malnourished and ill? Or would you suggest that was deliberately misleading, as poverty is much broader than that?
I offered the absolutely standard definition – and said so.
It is you who is distorting the truth.