7th December 2010
Back from my travels around Africa – to find the British deeply angered over the loss of the World Cup and behaving like very bad, and rather sad losers. With the exception of a student minority – the British remain deeply complacent about, and indifferent to looming government cuts, the fragility of our banking system, and the threats that both pose to the British economy.
So quiet and complacent is the population that ‘Cage against the Machine’ – 4 minutes and 33 seconds of soundlessness – will very likely echo the national mood and become a Christmas hit this year…
Some of this equanimity is induced by the centre-left Guardian whose columnists preach resignation and submission – to ‘the left’ and to rebellious students. The voice of one columnist, Deborah Orr, is stridently assertive in its economic analysis:
” Making some cuts in national spending is necessary at present” Ms Orr argues confidently “because the bond markets, which lend money to countries, tend to see nations unwilling to stop piling up ever larger structural deficits as larger credit risks (because they are), and hike interest rates on their lending accordingly. This is what is actually happening. It is the situation we are in, like it or not. No metaphors are needed to explain it.”
Ms Orr must have the ear of the government of Ireland, because they have proved most willing to follow her matter-of-fact advice “to stop piling up ever larger structural deficits” by making “cuts in national spending” Over the last 2 1/4 years the Dublin government has slashed government spending by €14.6bn, and is today budgeting to cut another €15 bn over the next four years. Despite these massive cuts, and promises of cuts, the bond markets are not satisfied. Why might this be? Perhaps because far from the cuts obeying the economic law laid down so firmly by Ms Orr, the opposite has happened.
Instead of falling as expected, the Irish deficit nearly doubled from 7.2% of GDP to 11.6% of GDP – sending the bond markets, the IMF, the ECB, Germany, Portugal, Spain, Belgium – and the Euro – into a spin.
As we have argued in these columns before: governments can cut public spending, but they can’t cut the deficit. That depends on how the rest of the economy reacts to the contraction in government spending.
Furthermore, the Irish government deficit – indeed the deficits of all governments – will only recover when the economy recovers. Not a moment before.
On this side of the Irish sea, the British people have barely noticed the crisis in Ireland. They remain relaxed as they prepare to dodge the weather and splurge on credit cards this Christmas. As far as Josephine Public can see, the economy is chuntering along happily, and all seems well with the world. That might of course have something to do with the fact that the British government has not yet followed the advice of Ms Orr, or the example of Ireland. British government spending rose in the third quarter of this year, and as Bloomberg notes this rise in government spending fuelled economic growth.
But we feel it only fair to warn: the British are about to follow the Irish into the Slough of Despond – and to lose the confidence of the bond markets. After rises in government spending there will be cuts of about £9 bn in this financial year. In line with Ms Orr’s advice, the cuts will be savage next year – £41 bn – and will be made more painful by the hike in VAT to 20% next January.
Add to that gloomy prospect the exposure of our banks to the troubles in Ireland, Portugal, Greece and Spain. According to IMF’s Staff Report for 2010 Article IV Consultation, the UK has “sizeable exposures vis-à-vis the United States, where the commercial real estate sector remains an area of particular concern, and a number of advanced economies in Asia and Western Europe, including those EU members currently in the spotlight of financial markets.
“Specifically, claims on Greece, Ireland, Portugal, and Spain account for about 14 percent of GDP—a similar proportion as for French and German banks, although UK bank claims are more strongly concentrated on Ireland. Negative shocks in any of these markets could necessitate further write-downs and weaken UK banks’ capacity to support the domestic economic recovery with adequate credit supply.”
Methinks the militants at the margins are better prepared for this shock, than the complacent millions at the core….
12 thoughts on “Britain: complacency at the core, militancy at the margins…”
Thank you once agin for your insightful reports. Thank you also for attacking the complacency on the left – our opposition seem to have disappeared all together. Where have they gone? Are they regrouping to amaze us with a withering new offensive when the Coalition’s policies really take hold? Or do they just not know what to say/do?
Thank you again, for your insight along the way.
thank you Patrick….I remain hopeful, because the student protests around both tuition fees, but also tax evasion, are a spur to others…Most people are living in a state of insecurity, and that makes it hard to think about the bigger picture…but with time and as numbers protesting start to rise, the majority will find their voice…The question is this: who will be there to lead them?
would you come and talk to my students at Richmond, The American International University in London (in Richmond SW London)? I think they’d find you very inspiring. James Earl (asst Prof Philosophy)
James, thanks for this…drop me a line at [email protected]…with details and possible dates….
It is amazing how uniform the views projected by the mass media are on this subject. I have yet to hear a dissident voice on the BBC, and even the more liberal papers are all talking the same talk. “Immediate cuts are necessary, there is no alternative. It’s about how much and how quickly”…and so on.
I read you piece with great interest as it sums up very neatly the fundamental issue which is misunderstood by so many people who echo the opinions of the voice of the establishment –
“governments can cut public spending, but they can’t cut the deficit. That depends on how the rest of the economy reacts to the contraction in government spending.”
Succintly put, but why are we not hearing this from any mainstream sources?
Thanks for you wise words and clarity of expression.
Zoltan, that is the joy of the web….We can find these ideas outside of the mainstream media…which is what they should be worrying about. Thanks for your support. Ann
Good to see you in action again. As I have said before, NOW is the time to protest at what is happening. Radical policies are being introduced all over the place as the shock of the “credit crunch” paralyses rational thought.
Everybody needs to read Naomi Klein’s “Shock Doctrine”, or read a summary of what she says, to understand what is going on at the moment.
Thank you Ann-it’s almost hard to know just were do start.
Surely this notion of “wealth” via real estate values, flash cars etc-the appearance of wealth, if you like is at the heart of a lot of the current problems.
also isn’t the deficit really a trade related problem?” As you have said before Britain needs to start making it’s own widgets and stop importing them. I would have thought that the German economy-only recently slightly eclipsed by the much larger China-would be an example of a first world country with proper wages, healthcare etc producing quality exports in every possible field creating a trade surplus.
I only hope that history and national rivalries won’t paralyse the EU and prevent countries like England from adopting a more Teutonic approach. I can hear the critics howl at this proposal.
Why is it then that nearly every second car on the motorways is a german one?
It is bit like watching the proverbial ‘slow train crash’ not only a question of cuts (proving that one learns nothing from history) but also no appetite for systemic change (so that history will repeat itself in a deeper key). I am surprised at the lack of anger or of political engagement. It is as if we surrendered our intelligence mesmerized by ‘markets’ (that we do notice that we construct) and economists (by whom we are deluded). It is all a bit depressing!
Given that the British government is over one trillion pounds in debt, is borrowing massive amounts of money from other countries to fund itself and is having to make ever-increasing interest payments on these loans, it’s really quite obvious that the government is living well beyond its means.
We have to starve the beast. It’s immoral that we’re inflating away our debt as this hurts everyone’s purchasing power and affects the poorest in society most. It’s immoral to have debt because it forces future generations to pay for the government’s credit card.
The solution must surely be a radical re-think of the role of government. If we privatised healthcare etc. we could easily solve our debt problems. Not only this, but private health costs would go down and indeed, these companies could export British healthcare services and products to other countries. For those who wouldn’t be able to afford it, the government could still help them.
I think it’s remarkable that in the 21st century, we still have a socialist healthcare system. It’s like a religion to many people – one that is beyond criticism and reform.
As for the unsustainable welfare state, we need civil society (individuals, families, churches, communities and so on) to realise that THEY should be looking after each other – not the government. It’s simply unsustainable and diminishes our charitable nature and responsibility for each other.
As I said, we need a massive re-think of the role of government.
The previous comment by John is typical Tory propaganda. If everything is done by markets, those with the most money will have the most power. This is worse than going back to the 1930’s, it is going back to the Victorian Age.
This is biased towards freedom, with no mention of equality. Is it OK for the rich to live in luxury, while the poor starve? Surely not in any civilized society?
Also there are many “public goods” which the market misses completely. Which firm would supply police services, defence, street lighting, public parks, etc of it’s own free will? There is a need for state action for the many gaps in a fully free market society.
All this was obvious in the UK by about 1850, and in most other industrialised societies by about 1900. It is pathetic that some people in the 21st century want to return to some form of 19th century Dickensian nightmare.
I came across an image you have of a man sitting in a chair between train tracks in your article “Britain: complacency at the core, militancy at the margins…”
I want to include this in a book I am writing.
I was wondering if it’d be OK (copyright OK) to use this image?