Austerity Is Not ‘Unnecessary’. It Is POISONOUS
April 7, 2015
by Martin Odoni
Ah, good old British understatement. I doubt there is another manner of discourse on Earth quite like it. It is a cross between our two natural instincts for sarcasm and self-restraint, and it seems as if we are almost exaggerated in the degree to which we understate.
We read a newspaper report about two people dying of poisoning in a restaurant, and our likely response will be, “Well, I probably won’t be eating there any time soon.” At Paddington, we inadvertently get on a train to Edinburgh when we are trying to make our way to Weston-Super-Mare, and our likely response will be, “I suppose I’d better get off at the next stop, or I could be in for a long walk back.”
See? We are brilliant at understatement. We employ it so much, so routinely, and with such effortless skill that most of the time we fail to notice we are even using it. We also probably have no idea how engaging, and at times bewildering, people from abroad find it.
But there are also times when it is perhaps a little unhealthy to use it, and one of the more insidious areas it has been used too often over the last five years has probably been the realm of British economics.
The Coalition Government of the Conservative Party and the Liberal Democrats, five years ago, embarked on a program of ruthless spending cuts and public service reductions that essentially amounted to butchery of over half-a-century of national institutions. They insisted the program was ‘necessary’ to rescue the country from the economic crisis of the previous two years. That crisis in fact had nothing in particular to do with the public sector at all, it was a worldwide crash in the banking industry in 2008, in which the UK’s financial services sector had played a secondary-but-key role. For this, British banks were duly punished by the Labour Government of the time with a series of free hand-outs totalling about eight hundred billion pounds, while millions of people outside the industry faced uncertain years ahead of lost vital public investment once the Tories had taken over.
The position even of those within the Conservative Party honest enough to admit the real cause of the ballooning National Debt and the economic recession (and there have been few enough of them to start with) was to stand by the cutting program. Irrespective of whomever the fault lay with, they argued, and of whether the wider public deserved better or not, the simple reality was that this enormous debt ‘had to be paid off’. The growing public sector debt, they claimed, was a critical burden in creating and maintaining the recession, a burden that was making it impossible for the economy to start growing again, and the funding used for ‘expensive’ services therefore simply had to be directed elsewhere. In other words, the cuts program, going under the banner of Austerity, was going ahead whether we liked it or not.
Others countered that by arguing that Austerity was ‘unnecessary’, that any money saved from spending cuts would simply be offset by lost tax revenues from further slowdowns in the economy’s performance, which would themselves result from those very same spending cuts. With the average Fiscal Multiplier (nearest public sector equivalent of a ‘profit’-margin) over the course of the Labour Government between 1997 and 2010 being around 1.3 – effectively a thirty per cent ‘profit’ – there was a danger of the Government doing the equivalent of climbing a ladder whose base it had grounded in quicksand; the faster the Government tried to climb, the faster the ladder would sink, with the net altitude gained by all that frantic effort being negligible. Furthermore, there was no threat to the country of ‘insolvency’ or ‘bankruptcy’ due to the Debt being processed through accounts in the Bank Of England, which controlled the money supply, and so could always keep paying debts that fell due irrespective of tax-receipts.
Now, before I say anything else, I must make clear that I am overwhelmingly in the latter camp. There was very little doubt whatever in my mind at the time – and now there is no doubt in my mind at all – that Austerity was not the way to go in 2010, and it is possibly never the right policy to adopt in any scenario. It was the equivalent of a company trying to make a profit entirely out of the singular virtue of owning a factory, without being prepared to invest in staff to run it, in the machinery with which to produce goods to sell, or in the raw materials from which the goods could be made.
The evidence is very definitely on the anti-Austerity side; –
In the last few months of the outgoing Labour Government, a fiscal stimulus package that increased public investment, by then-Chancellor-of-the-Exchequer Alistair Darling – a package the Tories opposed – had in fact lifted the country out of the initial recession fairly sharply, and although the growth it generated in Gross Domestic Product was still weak and unbalanced, it was a good foundation that could and should have been built upon and consolidated.
However, once the Tories were in office, they quickly cut off the stimulus package instead, and started cutting other spending too, claiming that it would reduce the ‘debt-burden that was hampering the economy.’ The result? The quick re-growth Darling had triggered stopped almost immediately, and the economy’s GDP started roughly ‘flat-lining’, and it would continue to do so for the next three years. Any time there was a hint of growth, the new Chancellor, George Osborne, would take it as a sign he was doing the right thing, and he would cut more spending, and that would immediately flatten the GDP performance again. It was only in late-2013 that the economy finally showed a genuine return to growth, and that was for reasons entirely outside of Austerity’s ‘merits’. (It also will not last, as it is dependent on new household debts that most of the debtors will not be able to pay back when the time comes over the next couple of years.) It meant that the deficit in the public sector’s annual finances simply refused to reduce to zero, as the Tories had confidently predicted would happen by mid-2015; instead, it has only reduced by about one-third (not by one-half, as the Tories, keep falsely claiming). With many of the knock-on effects of recent cuts still ahead of us, there is in fact a real possibility that the deficit will increase again soon.
That is all the evidence we need that Austerity was not the answer. (Every other attempt to implement Austerity in history is further evidence of that; it has never really worked for precisely the reasons stated above – it de-stimulates economies so much that it is ultimately self-defeating.) Therefore, those who argue that Austerity and extreme spending cuts are ‘unnecessary’ have been shown to be correct.
But at the same time, every time I see or hear the words “Austerity is unnecessary”, I do not stand up and applaud. On the contrary, I roll my eyes, because saying an action is ‘unnecessary’ merely implies that subsequent events would have been much the same, or at least no worse, without it.
This is not the case with Austerity at all. Without Austerity – if the Government had persisted with the fiscal stimulus package that Alistair Darling had introduced for instance – the last few years would have been very different indeed, and instead of just ‘no worse’, they would have been infinitely better. The performance of the economy would have improved far more quickly and more sustainably with that extra investment, and hundreds of thousands of disadvantaged people across the UK would not have been forced into poverty, homelessness, or destitution (or worse).
As I mentioned to Mike Sivier in an online conversation earlier today, saying Austerity is ‘unnecessary’ is a little like saying, ‘The collision with the iceberg did nothing to speed up the Titanic’s arrival in New York.’ Perfectly true of course, but hardly conveying the real significance of the event. Far more important were that the collision also made damn certain that the Titanic would never even reach New York, and that it killed an awful lot of people in the process. Worse still, that is more or less what is really happening to the good ship British Economy every time George Osborne makes it collide with Austerity.
We need to stop saying that Austerity is merely ‘unnecessary’, because that is an understatement that is simply not funny or skilful or engaging. It just does not make the real point, which is that Austerity is actually harmful, even to the very aims that it is supposedly meant to achieve. It is counter-productive, having a toxic effect on the entire economy, as well as on the population, and it means that people are suffering, and even dying – ‘for nothing’, some would say, but in fact it is far worse than that. People are suffering and dying just to keep carrying a chalice of hemlock closer and closer to our unsuspecting lips.
What we need to say instead is that Austerity is poisonous. It is never just ‘unnecessary’ to drink poison, it is always deadly, and we should never do it, end-of-story.
Surely it is time we put the chalice back down on the table now?
If our economy were the Titanic, Austerity would be its iceberg.