“Austerity is theft, the greatest transfer of wealth from poor to the rich since the enclosures.”
― Fuad Alakbarov, Exodus
What links Spain and the UK? Some might say tourism as millions make Spain their holiday destination every year for the weather, the beaches and its history and culture. However, not many people, if asked, would mention austerity. This week, Philip Alston, the UN’s special rapporteur on extreme poverty and human rights reported that Spain was failing many of its citizens, leaving them marginalised and living in extreme poverty. He noted the high unemployment and chronic youth unemployment, the shocking housing crisis and that fiscal policies had provided far more benefits to the wealthy than the poor. The 2008 economic crisis and the implementation of neoliberal policies had left Spanish society fractured, he said, with conditions often worse than in refugee camps where families were raising children with a lack of adequate state services, health clinics or employment centres.
If not a mirror image, it all sounds pretty familiar and comes almost a year on from Alston’s report on the UK in which he noted that the UK’s social safety net had been ‘deliberately removed and replaced with a harsh and uncaring ethos’ and that the government’s ideologically driven economic policies in the form of cuts to public services had led to tragic consequences. A year on, working people are still paying the price in ongoing austerity and rising poverty.
Austerity is not occurring in isolation. We often tend to think of it in terms of its damaging consequences for UK citizens and the public services on which they depend and yet it is being played out in many European countries including Greece, Spain, Italy and Portugal and more recently France where protests are continuing in towns and cities. From protests in 2016 against weakening employment rights, to President Macron’s more recent proposals for changes to welfare and pensions coupled with cuts to public spending in key public sectors, these demonstrations might be seen as emblematic of growing unrest across Europe and the rise of right-wing populism. Working people have suffered greatly from market-led EU policies which have weakened national democracy, put the corporate sector in charge in the corridors of power and imposed austerity at unforgivable human cost following the financial crash in 2008.
Whilst UK citizens have shouldered the burden of unnecessary austerity for ideological reasons dressed up as good housekeeping, i.e. a political choice, European citizens are paying a heavy price for a dysfunctional Eurozone and EU economic policies. This has trapped member states in damaging fiscal debt and deficit rules, combined with the EU Treaties which form part of an ideologically driven agenda which has enforced cuts to spending on vital public infrastructure and weakened working people’s employment rights. The loss of economic sovereignty of the member states has deprived Eurozone nations of the tools with which they can manage their economies effectively. Austerity is thus reinforced, both in ideological and in Swabian housewife terms.
We are living in ‘interesting’ times if not downright scary. Perhaps UK citizens thought that getting Brexit done would alleviate the uncertainty, but if anything, it has increased it. Trade deals are still a long way off, there is rising political insecurity on a global scale and a threatening worldwide economic slowdown.
Although the UK was thankfully not a member of the Eurozone, successive governments were ‘encouraged’ through the Stability and Growth Pact to keep to the same fiscal rules as Eurozone countries, which perhaps explains how spending plans were always seen through the lens of a household budget and their success or otherwise measured by the state of the public accounts. Although, of course, Margaret Thatcher should also share some of the blame by her declaration that ‘there is no public money, only taxpayers’ money’. Deficits bad, surpluses good, is the political mantra, which as we know doesn’t tell the whole story. The state of the public accounts should be measured in a government’s economic record, not a balanced budget.
Indeed, the Conservative government’s spending has been tempered by fiscal rules and promises to balance the budget which were imposed by successive Chancellors – from George Osborne to spreadsheet Phil Hammond and lately Sajid David. In recent months, there have been clear tensions between the Treasury and the Prime Minister’s office about future spending plans. Over the last few weeks, the authors of the MMT Lens have posed the question as to whether the government’s spending promises would translate into real action, pointing out the nonsensical nature of Javid’s fiscal rules on day-to-day spending (those same ones promoted by the Labour Party) and asking what those spending plans might actually mean. Will they or won’t they and if they do who will be the beneficiaries?
It seemed over the last two days, following Sajid Javid’s resignation on Thursday after the cabinet reshuffle, that part of that question might have been answered. With a new chancellor, a former banker and hedge funder, the markets reacted accordingly and predictably at the prospect of a new broom and a fiscal stimulus. Heaven knows the economy needs one, although of course, it would remain to be seen what that would actually mean in practice!
However, it became clear only a few hours later that the new chancellor is very much in the mould of previous ones as he told ministers to identify ‘deep savings to allow him to turn on the spending taps’ so he could boost spending. So, the good news about Johnson’s promise to spend on schools, hospitals, the police, buses and cycleways (not to mention his daft Bridge Across the Irish Sea) has been tempered yet again by faulty household budget economics. Save a bit here and there to spend elsewhere! We’ve been here before. A world of costed budgets, higher taxation or borrowing to pay for spending or robbing Peter’s budget to pay for Paul’s. The prospect of a fiscal stimulus was bound to bring out the debt doom-mongers asking how it would be paid for and talking about black holes and higher taxation as indeed the FT did last week. Now it appears they don’t need to worry.
Instead of spending plans which rested on the simple understanding that government is the monopoly currency issuer, that spending comes before taxation and indeed that such a government neither needs to tax or borrow before it can do so, we are back to household budget square one.
However, let’s imagine for a moment that Boris’s promises weren’t just a lot of electoral hot air and that his spending plans were not a mirage of the ‘now you see it now you don’t’ variety, the next question to be asked would be who would be the beneficiaries of this public spending spree and Johnson’s proposed tax cuts? The already excessively wealthy and the corporate sector, or working people? Handing tax cuts to the already wealthy would simply give them greater access to finite resources and reinforce the wealth gap whilst leaving working people still struggling.
As noted earlier, Johnson has promised spending on schools, hospitals and the police as well as pledging money for HS2, money for buses and cycleways and a Bridge over the Irish Sea. A spending stimulus should, of course, be seen as a positive move for the domestic economy in the light of the already damaging cost of 10 years of austerity, the prospect of a global economic slowdown and to counter the trade uncertainties that exist as a result of leaving the EU. However, in the light of those 10 years of austerity policies and the government’s political agenda, we must carefully examine what it might mean.
Public and social infrastructure has been ripped to shreds, the NHS and education seriously underfunded, whilst local government is in tatters with further stringent cuts to come, which will have a devastating effect on many northern councils who are already wondering whether they can even meet their statutory duties. Cruel welfare reforms, which were presented as simplification but were in fact designed to cut government expenditure, have penalised families, children, sick, disabled and unemployed people through their stringent and unfair rules. A big capital spending programme on infrastructure will not provide solutions to the impoverishment caused by such reforms, or the cumulative effects of wage caps, cuts to public services, and rising private debt and nor will it be intended to. As Yanis Varoufakis commented in his book ‘Adults in the Room: My Battle with Europe’s Deep Establishment’.
‘Austerity is a morality play pressed into the service of legitimizing cynical wealth transfers from the have-nots to the haves.’
We can have ‘MMT for the rich’ whereby public money continues to pour into the corporate sector to provide services for profit whilst at the same time continuing with ‘rugged neoliberalism for the poor’ as Jeff Epstein, the progressive writer and podcaster, described it in a recent video. The winners and losers could be the same as they have been for decades under successive governments since Thatcher.
Without investing in the public and social infrastructure which ensures a healthy and educated population, provides well paid jobs alongside a Job Guarantee, looks after its most vulnerable citizens and provides the essential services that keep an economy running efficiently, a capital investment programme will prove a poor substitute for investment in national wellbeing if the same investment is not made to improve the lives of working people. The foundations of a healthy society are laid by investing first in the real wealth creators; the working people of this country who form the backbone of a healthy economy.
Furthermore, if the Conservatives had been planning to implement a genuine capital expenditure programme using a modern monetary reality lens, which clearly it is not, then the question would never have been where the money would come from, but whether the nation had the spare capacity and idle resources to do this. Given the scale of the proposed capital infrastructure spending, it will require government planning and forethought to ensure that the country has the construction training programmes in place with sufficient trainers to train workers before a single brick, rail track or bridge tower can be laid. Indeed, it is not the primary role of government to balance the budget; its first consideration should be to deliver public purpose in the interests of those who elect them and the economy as a whole, not just an elite section of it.
Politicians on the left continue to play the game of ‘hard choices’ as one in the Labour leadership line-up did this week, or bang on about making the rich pay their fair share towards public service provision or indeed point fingers at the government for the size of its deficit or debt, so they are failing to focus on the government’s real failure on the economy. While this continues, the ability to deliver a truly left-wing agenda will simply keep on fading out of reach like a mirage. In an increasingly politically unstable world with all the challenges we face, not just in levelling up the distribution of wealth and ensuring that our public and social infrastructure meets the needs of citizens but also in addressing climate change, there is too much at stake to stick to these incorrect narratives. We must accept monetary reality.