“Ultimately austerity has failed because it is unsupported by sound logic or data. It is an economic ideology. It stems from the belief that small government and free markets are always better than state intervention. It is a socially constructed myth – a convenient belief among politicians taken advantage of by those who have a vested interest in shrinking the role of the state, in privatizing social welfare systems for personal gain. It does great harm – punishing the most vulnerable, rather than those who caused this recession.”
David Stuckler, The Body Economic: Why Austerity Kills
So here we are. After literally years of national uncertainty over Brexit, parliamentary wrangling and growing public discontent, a general election has been announced just before Christmas. Whilst at this early stage it is unclear what the outcome might be (we have a road to run yet) who we vote for should be determined not by listening to the promises that will be made in political manifestos but by examining closely the economic record of the current government over the last 9 years.
Who has gained and lost out through government’s and taxation and spending policies? Who has suffered at the sharp end of austerity politics and why? Every day the consequences are ever more visible. On our streets, in our hospitals and GP surgeries, in our schools and local communities, amongst our family and friends. Hunger and the normalisation of food banks, growing homelessness, cuts to child and adult social services, the collapse of social care, lonely deaths of vulnerable people behind closed doors, longer waits to see a doctor or hospital referrals, the humiliation and financial distress caused by welfare reforms. This is what austerity has achieved. GIMMS has covered these things week in and week out for the past year in some form and again we make no apology for doing so again. What happens next will be in our hands as will the future of our children and future generations.
Austerity has been built on a lie, and in fact, has allowed the incumbent government to pursue the neoliberal ideology of decades with impunity. It has shamelessly promoted the cult of the individual over collective action, demonised those who don’t fit the mould of hard-working people, left them at the mercy of the unemployment queue or working in the low paid, insecure gig economy, burdened them with high levels of private debt, increased poverty and inequality not to mention sold off public assets and privatised vital public services.
We were endlessly told that the previous Labour government had spent all the money and bankruptcy beckoned. We were told there was no alternative to cutting public spending to get our finances back in order. We were told that our public services were inefficient and no longer affordable. And we believed it all. Not because we were stupid but because it seemed a logical premise that the government’s finances were like our own. We were bound by Dickens’ character in David Copperfield, Micawber, whose dictum was that happiness arose from not spending beyond one’s means. However, those misunderstandings are now starting to shift and although many politicians and orthodox economists are trying to ignore the elephant in the room, modern monetary realities are moving into the mainstream arena to be discussed, criticised and picked over. We should feel more confident at this positive step forward.
In the meantime, though, we still have a big job in front of us to inform and challenge the status quo and economic orthodoxy of the last 40 and more years.
While we prepare for the coming election (and Christmas) the effects of government austerity roll on, affecting people’s lives remorselessly.
Published in July and updated just a few weeks ago, the Insolvency Service reported that levels of personal insolvency were approaching the highest in a decade. In the three months up to September, they rose from 25,169 in the same period last year to 30,879. The data also showed a dramatic increase in company insolvencies which had increased for the third consecutive quarter. Duncan Swift, president of insolvency and restructuring trade body R3 said ‘figures provide a worrying insight into the state of personal finances’ and are ‘further evidence that the economic and political turbulence of the last 12 months has taken its toll on businesses’. He also observed that ‘although real wages have hit a recent high, they are still lower than they were before the financial crisis. Unemployment may be low but it’s not necessarily secure for everyone’.
In a blog in 2017, Professor Bill Mitchell wrote:
‘One of the defining features of the neo-liberal era has been the build-up of private debt, particularly household debt. [……….]. Pursuing budget surpluses is necessarily equivalent to the pursuit of non-government sector deficits. They are the two sides of the same coin’.
In other words, when a government is in surplus i.e. it has taxed more than it has spent the non-government sector pays the price.
We should be wary however about blaming everything on Brexit, as many pundits do, and instead should be looking at other causes for the rise in private, household debt and growing financial instability.
Over the last nine years, the government has pursued an austerity policy of cuts to public spending on the false premise that it needed to cut its deficits and borrowing to get the public finances back into shape. It also provided a handy smokescreen for the Conservative government to reduce the level of state involvement in public service delivery by contracting out and privatising services, although it did not stop public money going into private profit.
Public services were cut, people lost their jobs and local government grants were slashed. Poverty and inequality grew as employment became more precarious in a low wage economy along with the rise of zero and part-time hours, and the gig economy. The claim at the time was that if the public deficit was not reduced then the economy would suffer through a scarcity of money. The politicians advised by economic experts promised that lower deficits or fiscal surpluses would guarantee financial stability.
However, the reality was the reverse. Austerity policies, quite simply, removed money from the economy and reduced people’s spending power, leaving them with no other option but to increase their debt by taking out credit or spend their savings. As John Maynard Keynes so rightly noted ‘the boom, not the slump is the right time for austerity’.
When a government stops spending sufficiently to ensure full employment, someone else has to take up the slack i.e. the consumer has to spend instead to prop up the economy. However, unlike currency-issuing governments whose spending constraints are not financial, private households are limited in their capacity to spend by their income or their ability to borrow. Pursuing lower deficits or surpluses was, and still is perverse, not to mention damaging, given the economic context at the time. The nation is now paying a heavy price for austerity as the country faces the prospect of a future recession caused also by a global slowdown and the uncertainty of Brexit.
By way of example, we can show how the prevailing economic orthodoxy had serious consequences for the economy. In the early 2000s, Labour ran budget surpluses achieving the lowest deficits in UK history. Politicians of the time, in justification and using the classic household budget metaphor, said that there was nothing progressive about budget deficits and that every pound we spent on debt interest was one less we could spend on the NHS, on vital public services, on helping the poor and vulnerable. The UK was at the time on the crest of a wave of consumption built on household debt which subsequently and, as we know, ended in the Global Financial Crash caused by crooked financial institutions who’d got out of control, and governments who had not only encouraged a deregulated financial environment but also pushed debt into the private sector whilst claiming themselves to be financially prudent. We don’t seem to have learned any valuable lessons from that experience.
In a co-authored paper with Luke Reedman, Professor Bill Mitchell wrote in 2002.
‘… a major shift in monetary and fiscal policy is required and must begin with an acceptance that public deficits are typically required to maintain stable growth rates in spending and sustainable levels of private sector debt. The government can clearly run surpluses for a time by exploiting the willingness of the private sector to increase its debt levels. But this strategy becomes highly deflationary once private agents seek to restore their balance sheets. The resulting output corrections force the public sector into deficit with accompanying private wealth losses and rising unemployment. In this context, the argument that budget surpluses are needed to ‘fire-proof’ the economy is nonsensical.’
To give these technical facts a human dimension we need to bring them down to real-life realities.
Aditya Chakrabortty commented in an article this week, that more than four million are children living in poverty in the UK and that the number of food banks has increased from 57 in 2010 to 428 last year, handing nearly 580,000 parcels to children. Such figures, in one of the richest societies in human history, should mortify us as a nation. Reviewing the recently published book ‘It’s a no money day’ Chakrabortty describes it as ‘a watershed moment when Britain’s food banks go from newspaper headlines to a subject that teachers cover in classrooms; the moment at which mass destitution is no longer a badge of political failure but is instead accepted as part of British life.’ The normalisation of food banks and the charitable collection of food in supermarkets should be THE moment when the alarm bells start to ring.
When the likes of Michael Gove sneer at people using food banks for not being able to ‘manage their finances,’ in so doing they not only perpetuate the lie that people are to blame for their own misfortune, but they also provoke hate and create societal division. By propagating the lie of money scarcity and shifting of responsibility from government to individuals, politicians are failing in their duty as elected officials to serve citizens. The role of government needs to shift back from one which serves corporate interests to one which serves the public purpose.
We are a nation rich in real resources and have a currency-issuing government with the capacity to mobilise those resources for the public good. Nurturing our children should be always central to our nation’s investment, with their young minds nourished with hope and inspiration and not the needless misery of foodbanks and poverty. By extension, this applies to the population as a whole, many of whom have suffered needlessly from government austerity and ideologically driven policies.
Given the climate crisis and the challenges we face in righting the social injustices of the past few decades (caused by an ideology which has put the individual over the interests of the collective and profit over the health of the planet and its citizens increasing poverty and inequality and threatening the existence of our species), it is time to engage in a conversation about what we think should be our priorities in the future. About what sort of country we want to be, what public and social infrastructure we need to create economic and social well-being and what sort of future we want for our children’s children. These are not left or right questions, they are, quite simply, questions about our human values.
In the words of the current Prime Minister, ‘Britain deserves better’. It certainly does. Better than the last 40 years of economic and ideological orthodoxy which successive neoliberal governments have pursued relentlessly. It’s time for a change.