The austerity delusion

austerity
Nothing about the austerity chancellor is honest. Even his name is a lie – he ditched Gideon to advance his political career.

Positive thinking is a powerful tool. According to self-help guides, it is a sure route to creating an optimum emotional and intellectual state that will lead us inexorably to satisfying our enormous potential. All the hideous things that would otherwise drive us potty are recast as mere challenges in our glorious ascent to personal abundance and growth. Such is the case with today’s austerity delusion.

Armed with our own Dunkirk Spirit, we can soar to new heights of achievement and, in the process, blow a raspberry at today’s circling Luftwaffe bombers – the banks, venal politicians, bureaucracy, recession, selfish and disloyal lovers, dysfunctional friends, crap weather, people who hog the middle lanes of motorways… Positivity is our mission, if we choose to accept it.

And it’s ‘staying positive’ that apparently helps us turn hardship into opportunity – which is why I apply positivity to every aspect of my own tortured existence. Take my wife and I, for instance. Though we live under the same roof, we actually separated two years ago. What this means is that, when we’re together, we can generate enough tension to power a small African nation.

Not ideal living conditions, I know. But I content myself with the thought that, as I arrive home from work in the evenings, living rooms the length and breadth of Burkina Faso are suddenly bathed in light.

 

Mutual loathing

It warms my heart that our gift of psychic energy borne of mutual loathing means Africans can experience at least some of the modern delights that we in the West take for granted – such as committing industrial-scale genocide on Call of Duty, or spending hours in a TV-induced catatonic silence as the drama of Dance Moms or Made in Chelsea plays out before us. See, that’s what positive thinking can do for you.

Of course, the cynics among you might say I’m just hopelessly delusional. Well, you can say that if you wish. But, if I am, I’ll be in good company because self delusion has become a very popular way of dealing with today’s stuff. And there’s a lot of stuff to deal with. Turn on the news or watch any of those infuriating editions of Question Time, and it seems our common-sense understanding of the world has become stuck in a children’s book of neo-liberal fantasies, while the Luftwaffe pounds the landscape virtually unnoticed.

 

Reality distortion field

A zone of unreality surrounds the cuts outlined by chancellor George Osborne in his spending review last month. In it, he identified £11.5bn of additional savings for implementation from 2016 – the year after the general election – that will extend the austerity programme by three years, to 2018. Fairness was at the core of his strategy, he said, because we’re “all in this together” (groan). His faith in austerity, for which there is precious little supporting evidence or credible theory, must mark him out as an inspired, positive thinker, incredibly delusional or, more likely, profoundly cynical.

The plain fact is that austerity hasn’t worked – or, at least, not in the way it has been justified to us. Referring to research by Michael Saunders at Citi Research in his FT blog, Gavyn Davies says the economy “has barely recovered at all, after the deepest recession since the 1930s. Nominal GDP is now 16% below its previous long-term trend.

The path for real output, which had been generally expected (by the Bank of England and others) to be revised upwards by the official statisticians, was recently revised downwards by 1%, making the picture look even worse. Productivity growth, which had been stable at about 2% per annum for decades, has slumped to -1% per annum since the crash.”

 

One-nation nonsense

The Conservatives joined forces with the Liberal Democrats in 2009 with tackling the enormous public debt as the key to reviving Britain’s fortunes.

It was Labour’s decision to rescue the financial sector, and its management of the aftermath, that led directly to the spiralling public debt: in 2006, the year before “the world changed”, the deficit stood at 32.2% of GDP, comparatively high by modern UK standards though still well below the 50.9% that Norman Lamont left his successor Kenneth Clarke during John Major’s Tory administration.

By 2009, with the crisis still in full swing, the deficit had reached 156.3% of GDP – though the underlying figure (excluding the cost of ‘financial interventions’) had only risen to 49%.

But in contrast to Osborne’s rallying call that we’re “all in this together” – in which he evokes the ‘one nation’ wartime need for a government of national unity against a common enemy – the Conservative-led Coalition has sought to blur public understanding for who was to blame for the crisis.

They pinned the blame for the enormous deficit on Labour’s economic mismanagement, a claim ministers of both parties still repeat today.

 

Cynically opportunistic

However, this assertion is disingenuous at best, and cynically opportunistic at worst, if you consider that Conservative leader David Cameron supported Labour’s banking sector rescue package at the time – until finally attacking Labour as the 2009 general election loomed.

Labour conceded this point at the outset, and has failed to effectively tackle the austerity narrative, despite the absence of recovery. The deficit currently stands at around £875bn – 75% of GDP – if you exclude ‘financial interventions’, and 140% if you don’t.

And there is no mention at all of private debt – loans, mortgages, credit cards, corporate debt – even though, at around 600% of GDP it dwarfs the public debt and poses a much greater threat to any recovery – and, indeed, the UK’s economic and social health. Private debt is the terror that dares not speak its name.

To be fair to Miliband et al, they have to contend with a social phenomenon similar to that described by behavioural economists in Cumulative Prospect Theory: that is, the urge of a loser in a financial gamble to double down on a failing strategy rather than abandon it in the misguided belief, or hope, that their chances of success will progressively rise.

 

Nailing the lie

In other words, having lost a stash of cash in the austerity slot machine, we’re now going to gamble even more of our hard-earned pennies in the hope that we’ll strike lucky and get it all back, with interest.

In failing to deconstruct the narrative head-on, Labour has been implicated in a financial crisis that had its genesis in the international trade in collateralised debt obligations.

A trade born in Wall Street over which it had no control. A trade from which many of the Conservatives’ constituency in the City generated obscene profits. Blaming Labour is not only an obvious strategy to gain political advantage, but it also diverts the sting from the real villains in the crisis: the banks.

The fact that Ed Miliband’s party doesn’t even try to nail this particular lie illustrates how hamstrung and timid the official Opposition is.

 

Cuts, cuts, cuts!

But Labour and its reputation is not the real victim here. Indeed, it’s not even just Labour’s constituency – the poor; manual, skilled and public sector workers; the professional, liberal middle classes – that are suffering, though they are being disproportionately hit. Every one of us that relies on the “real economy”, that are saddled with mortgage and other debt while facing rising living costs on falling incomes, are also victims.

However, though the British public remains angry with the banks, this anger has not translated into action. No individual bankers have been charged with any offence in connection with reckless, unethical and criminal conduct, despite several highly-publicised official reports, a wealth of evidence and sufficient legal powers. The bankers who led us here are still free to spend their bonuses.

Interestingly, there appears to be no public campaign to bring the rogue bankers to justice. The press, for instance, are not pushing the agenda for action.

Had it been socially-dysfunctional welfare benefit fraudsters responsible for causing such economic carnage, the press would undoubtedly have declared open season and we’d be reading daily updates about their crimes, sexual indiscretions, numerous children and taxpayer-funded idleness in graphic detail.

 

Psychopath economics

Where’s the press hounding of the economic psychopaths? Where are the endless tales of their contempt for society, their lack of empathy for their victims and their grossly inflated sense of entitlement?

The lack of any action against the “economic terrorists” and “banksters” that helped destroy so many jobs and livelihoods is a scandal of truly epic proportions. But it has been made worse by Cameron and Osborne’s neo-liberal agenda to cut back the state, and increase the poor’s dependency on an employment market of low-skill, low-paid, insecure, zero-hour jobs with no future. The Coalition is adding to the misery of millions at a time of already considerable hardship.

For example, in April, the Coalition introduced three ‘absolute’ benefit cuts:

  1. the replacement of council tax benefit with council tax support, estimated to cost 2.4m families in England an average of £2.60 a week;
  2. the introduction of the under-occupation penalty (aka the bedroom tax), which is expected to cost 0.7m families an average of £14 per week; and
  3. the household benefit cap, which is expected to affect 56,000 families with an average cut of £93 per week.

At the same time, income support, jobseeker’s allowance and employment support allowance rates were increased by just 1%, when official inflation stood at 2.4% and rising (it’s 2.7% today). Real inflation – ie. when the government’s under-reporting of inflation is accounted for – is estimated at around 6%. Benefit recipients are seeing sizeable real-terms cuts.

 

Food bank Britain

But even this, according to the New Policy Institute’s Hannah Aldridge and Adam Tinson in their report Black April, still understates the Coalition’s attack on the poor. They write: “What has not been published are estimates of the extent to which families are affected by more than one such [benefit] cut. This is a serious omission because being hit by two or more cuts rather than any one will make a big difference to a family’s ability to cope.”

Indeed, they go on to estimate that 2.6m families – 8% of UK families – are affected by at least one of the three absolute benefit cuts, while just under half a million are affected by more than one of these cuts.

Around 13m people in Britain are in poverty, according to Black April. How exactly are these people supposed to live if their safety net is cut? Particularly if there are no jobs through which they can replace the lost income – if, indeed, they are able to work at all. Who knows?

But one thing is for sure: the government won’t be giving this question much thought if recent comments by work minister Lord Freud, a former investment banker, is anything to go by. He, for instance, does not believe that the soaring numbers reliant on food banks has anything to do with benefit cuts at all.

Half a million people now depend on food banks in the UK. Oxfam chief executive Mark Goldring told the Guardian: “The shocking reality is that hundreds of thousands of people are turning to food aid. Cuts to social safety nets have gone too far, leading to destitution, hardship and hunger on a large scale.

 

Walking the breadline

It is unacceptable that this is happening in the seventh wealthiest nation on the planet.” Walking the Breadline, the report his charity jointly published with Church Action on Poverty, makes a direct link between benefit cuts and hunger, and predicts that demand will rise to exceed the food banks’ ability to cope.

So what’s the policy response? Well, there isn’t one. Except, perhaps, the ‘out of sight, out of mind’ policy illustrated by the police crackdown on homeless people in Ilford, east London. Perhaps this is a sign of things to come; where the homeless are blamed for their predicament, with their few possessions confiscated by the police as they are forced to move on. If this is what the safety net has come to, then Britain’s social contract has been shredded.

 

Sale now on

Since its election, the Coalition has been busily looking at which state assets and services can be sold or contracted out. This includes anything from land and buildings, such as the War Office, to the Royal Mail, to the Tote, the Behavioural Insights Team (the so-called ‘nudge unit), specialist NHS and support services such as Plasma Resources UK, its primary source of blood.

Public service strategy is being overseen by the Shareholder Executive, a team full of City executives seeking to engender a more commercially-orientated approach to public assets. Its boss, Mark Russell, formerly of KPMG, seems keen to do himself out of a job by selling everything: “We don’t believe government makes a particularly good shareholder.”

But this whole approach is predicated on a neo-liberal ideology of how things work and how things should be done. The only problem is: the model bears no relation to reality.

For instance, the Conservatives, many of whom call themselves ‘free marketeers’, want The Market to deliver everything as far as possible. But there’s no such thing as a free market today. Most if not all of the major international markets have been fixed by banks and hedge funds – or, at the very least, manipulated: gold, silver, oil, credit-default swaps, libor, euribor and other interbank lending markets, the trade in securities and derivatives, and even food commodities.

 

Quantitative easing

Meanwhile, currency markets are routinely manipulated by governments, through interest rate policy and quantitative easing, as well as by the banks and hedge funds. The FX market, for instance, was described as being “like the Wild West” by James McGeehan, co-founder of foreign-exchange strategist FX Transparency LLC.

Even the local markets in products and services put small and medium-sized enterprises at a competitive disadvantage due to a stiffer tax, regulatory and subsidy (corporate welfare) regimes than their major corporate compatriots. The Market’s credibility as a meritocratic medium for progression and distribution of rewards is so flawed that companies and countries are openly seeking to cheat than follow the classical economic model of competition. Those who encourage us to blindly embrace The Market are engaging us in a confidence trick.

The Market and its failures, however, aren’t the only flaw in the theory. The neo-liberal state is a small state, but today’s (in their view) “bloated” government and its institutions are already unable to keep voracious corporations and venal self-interest in check. The limitations of Milton Friedman’s claim that the only duty on companies is to maximise profits for shareholders, while all other considerations can be dismissed as ‘externalities’, is also becoming increasingly clear as not only are the environmental and social costs of production becoming unsustainable.

In addition, humans are not the rational creatures neo-liberals would have us believe; we are not solely concerned with maximising our utility at all costs, whatever ‘utility’ in this context means. The field of behavioural economics has uncovered a much more complex set of economic behaviours – which, incidentally, the banks understand and exploit. The fact that the neo-liberals’ are divorced from these realities of economic life is confirmed by their inability to predict – or, indeed, understand – recessions, and particularly this recession.

 

When reality comes calling

The most vulnerable in our society are picking up the tab for a crisis they didn’t cause, while the people and the systems responsible for landing us in this mess are rewarded with impunity and billions of pounds of virtually interest-free money through quantitative easing (QE), to do with pretty much as they wish. While they pick up their handsome bonuses, hundreds of thousands of us are being economically cut loose to rely on food banks to survive. The unfairness of it all is simply breathtaking.

But there will be a sting in the tail for all of us in this. The resentment caused by this unjust economic strategy is likely to explode onto our streets, particularly if another crash hits – as is becoming increasingly likely. The age of ultra-low interest rates looks about to end, which will kill the QE-stoked 300-year bond market high. It will also mean increased mortgage repayments for a population already saddled with high levels of debt.

 

Recovery? What recovery?

Given that austerity has not created any sort of recovery worth talking about, certainly not for the majority of us, then the question becomes: was austerity worth all the pain? For those on the receiving end, a number likely to grow significantly, the answer will almost certainly be ‘no’.

Cameron and Osborne’s positive mindset must shield them from considering this outcome, but how long can they keep it up? How much pain can they dish out before the destitution of thousands, perhaps even millions, encroaches on their consciousness? How long can they keep our thoroughly discredited economic and political system clinging on to power. To quote a Chinese proverb: we live in interesting times.

Anyways, I’ve made my point now and I’m going to finish work shortly. So, Burkina Faso, it’s time to get your Xboxes and your televisions at the ready. I’ll be home soon – and then it’s party time…

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peterbatt

Peter a journalist with 30 years experience of freelance writing, UK national newspaper and magazine production roles, and business development. In 2007, he developed and launched a mainstream-style green consumer magazine in the UK, called GreenerLiving, as a means of promoting sustainable change ‘within the system’. GreenerLiving closed during the post-crash recession, but Peter went on to become managing editor of the international ethical business title, Ethical Performance. However, Peter felt that the CSR sector has not succeeded in changing corporate priorities anywhere near fast enough, and so I decided to leave the treadmill of corporate employment and debt accumulation to focus on my own projects. Now poorer but a billion million times happier, he writes on political, economic and social issues – usually seriously, but sometimes as satire. He's currently writing Psychopath Economics, a book about the logic of social and economic power, belief systems, and the rise and fall of societies. Peter is convinced that ordinary people must educate themselves and exercise their economic leverage if we are to avoid social and environmental destruction.

peterbatt has 163 posts and counting.See all posts by peterbatt

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