14 July, 2009
Julian Glover has an interesting piece in the Guardian today. It seems voters want the Tory spending axe to fall on their necks – after the next election. This fatalistic majority in favour of economic self-harm should come as no surprise. Led by David Cameron and the Tory Party, who in turn are spurred on by economists, the Institute of Fiscal Studies and the bond markets – the unanimity of political and media opinion advancing brutal economic self-harm is almost total.
Like Claudius Galen, a brilliant self-publicist and physician to the Roman emperors, whose remedy of bloodletting held sway over medicine for an incredible 1700 years – misguided politicians, financiers, economists and journalists have persuaded the public that self-harm is the best economic remedy.
The alternative – modern – case has not been put before them effectively. Alastair Darling, the Treasury, the governor of the Bank of England – are all effectively in David Cameron’s camp on this issue, as are a good half of the Labour Party and all of the Liberal Party. The Prime Minister and Ed Balls MP have tried to put the case for spending, but they are hobbled by their long-established, and self-inflicted target aimed at appeasing the finance sector. Namely that public debt should not exceed 40% of GDP.
Today, in the midst of the gravest financial and unemployment crisis since 1929 – a crisis far more serious than the government deficit – public debt stands at 42% of GDP. If the government’s bail-out of the banking sector is included, the deficit rises by another 10% – to 52%. Without the bail-out, government debt would be reduced by about £150 billion. (See graph from Office for National Statistics).
Bear in mind that when the British government faced an earlier, dire crisis – the Depression of the 1930s and the threat of Hitler – the government deficit rose to 250% of GDP by 1945. It then fell after the war, as the economy recovered, and a Labour government began to create millions of jobs, by spending on the NHS, public housing, nationalisation of utilities etc….. The newly employed did what Keynes expected them to do: they began to pay taxes – and generate income for the UK Treasury. The multiplier kicked in. Professor Chick (University of London) reminded me recently of Keynes’ homily:
Look after the unemployment, and the Budget will look after itself. (1933, CWK, XXI: 150)
Do economists/economic commentators/politicians remind us of this elementary theory today? No. The honourable exceptions are yours truly, and William Keegan on the Observer. But ours are very lone voices…..And its ironic too, because the case being made (first by Keynes, and subsequently by Prof. Chick) is that the deficit will recover, when the economy recovers. Very few echo those arguments. The Treasury is the most sceptical of all.
Yet the Treasury (or at least that tiny unit within the Treasury known as UK Financial Investments – charged with overseeing our nationalised banks) is willing to argue today that the billions of pounds lent directly to the banks will only be recovered – when – wait for it, the economy recovers. It will take “patience and professionalism” to wait until then, argues the UKFI chief executive.
So we can relax about recouping our losses incurred in bailing out the bankers; but we cannot relax while bailing out innocents that are victims of the Bankers Recession. No, they must all face the axe. And to sweeten them up for this punishment – the bond markets, politicians, the Institute of Fiscal Studies, the whole breadth of the broadcast and print media – argue that spending cuts, like blood-letting, while painful, are a) inevitable, and b) good for us.
Unemployment must rise, mothers must be deprived of child benefit, pensioners of decent pensions – and those 48 students chasing each job must be abandoned to the dustheap of history – and to drugs and despair. As for the Green New Deal. Forget it. We will NOT prepare for extreme weather events.
The result of this mournful propaganda?
62% of those questioned by the Guardian and ICM have voted for the axe. All of them turkeys.