Published on Mar 24, 2013
Michael Hudson: Why do they call for governments to balance the budget by pushing the economy at large deeper into debt, while trying to save the banks from taking a loss?
I think we should be explicit… George Osborne is using neoclassical economic theory as a ‘blind’, in order to push through an ideological agenda. It has nothing to do with creating an economic recovery. Osborne wants to lock-in irreversible changes to the social and employment fabric of the UK. He and his ilk, are not Conservatives in the classic sense of desiring to preserve the connections between the past and the present. They are deliberately wrecking the UK economy (any new government will be faced with a shortfall in output of approximately 20% of GDP or £250+bn) but of course, any crisis is a money-making opportunity for the financial speculators, the corporations and the super-rich 0.003%.
If you want to know where, and what model, Osborne, Letwin, Maude et al are following.. look across the Atlantic at the US. Osborne is known to be obsessed with American politics. The Independent’s Steve Richards agrees that Osborne’s ‘philosophical’ position is to the right of the Republicans.
‘The Wrecking Crew’ is the description Thomas Frank gives to the economic/political strategy of the Republicans (in his 2008 book) but the same features have become all too familiar in the UK:
“Fantastic misgovernment of the kind we have seen is not an accident, nor is it the work of a few bad individuals. It is the consequence of triumph by a particular philosophy of government, by a movement that understands the liberal state as a perversion and considers the market the ideal nexus of human society. This movement is friendly to industry not just by force of campaign contributions but by conviction.”
The goal of the Republicans (Osborne et al) was/is to actually erase liberalism (social democracy, democratic socialism, the left)… an ‘end of history’ in which taxes and onerous regulation will never again be allowed to threaten the fortunes that private individuals make for themselves. This is what Karl Rove meant by creating a ‘permanent majority’, and by Margaret Thatcher who said “Economics are the method, the object is to change the soul’.
‘Casting back to the early days of the conservative revolution, Frank describes the rise of a ruling coalition dedicated to dismantling government. But rather than cutting down the big government they claim to hate, conservatives have simply sold it off, turning public policy into a private sector bidding war …
It is no coincidence.. that the same politicians who guffaw at the idea of effective government have installed a regime in which incompetence is the rule. Nor will the country easily shake off the consequences of deliberate misgovernment through the usual democratic remedies. Obsessed with achieving a lasting victory, conservatives have taken pains to enshrine the free market as the permanent creed of state.’
This ‘economic’ strategy is described in more detail by Thom Hartmann. Essentially, the Republicans deliberately aim to run up huge deficits by cutting taxes for the rich (whilst keeping on spending).. a deficit which is then inherited by the Democrats. As Frank explains.. ‘the main reason conservative administrations run up as large a deficit as possible – is that deficits defund the left’ and prevent them from implementing their social programmes when they return to government.
Robert Reich, former labor secretary to Clinton, commented on the Republican approach:
‘If the public thinks government is wasteful [useless], that’s fine. That reduces public faith in government, which is precisely what the Republicans [Osborne] want.’
A major factor in the success of this strategy is that the right can play dirty (very dirty) but intrinsically, the left cannot. Furthermore, the mainstream political commentators constantly give the right’s lies and spurious rationales an undeserved credence, often in the name of impartiality. The narrative… regardless of the facts… is all.
So what is to be done?
The current Labour leadership seems to be falling into the trap of accepting the ‘lack of funding’ caused by Osborne’s mismanagement of the economy. Crazily, Ed Balls has even suggested adopting Osborne’s spending limits for the first year if they form the government in 2015. However, his economic approach, Neo-Keynesianism, is a horrible, contradictory synthesis of Keynesianism and Neoclassical economics, which makes no sense to the post-keynesians (Modern Monetary Theorists) and Steve Keen.
These heterodox economists are the natural inheritors of Minsky and Kalecki’s work which pinpoints the significance of private debt levels, and the need for full employment. Professor Bill Mitchell writes of Osborne’s economic deception in the UK:
None of this austerity is remotely justifiable. The state budgets collapsed largely because of the automatic stabilisers which are like canaries in the mind – they tell you that the real economy is in trouble. The fiscal aggregates (budget deficit etc) are just like thermometers – they send signals about how the economy is going.
You do not cure a failing real economy by cutting spending. That is like curing a cut leg with amputation and then leaving the wound open. It is madness.
There are workers ready and willing to work. People are pessimistic. They need to feel secure and confident. Keynes knew that well. You don’t give people hope by worsening their circumstances. Desperation does not lead to positive responses.
The people are rebelling in the Middle East as an expression of their recognition that their governments have failed to represent their best interests.
It is clear to me that the British government and the US governments (and many state governments in the US) are no longer serving public interest. They are punishing innocent and disadvantaged citizens to satisfy the ideological (religious) beliefs of a monied elite.
I think people don’t tolerate that forever.
Ed Balls should step out of the Tory trap and align the Labour Party with a commitment to full employment, a job’s guarantee for all who want, and are able to work. By offering the alternative of a job or benefits, a Labour government could raise the wages of the private sector worker because employers would have to at least match the ‘government’ jobs in order to get staff.
Increased employment and increasing wages and benefits, would automatically create the demand… the lack of which is the real problem beseting the UK economy.
What sort of government jobs?
Quite apart from replacing those removed by this government from nursing, the police and social care etc, we need a mass building programme of new affordable ‘council’ (democratically-owned) housing, and retrofitting of the existing housing stock with insulation and energy-conservation measures. The UK has an abundance of renewable energy opportunities and could be a net exporter of energy. Developing those resources could create the new manufacturing and apprenticeships in the non-South-East UK. Scotland is leading the way but is still suffering from a lack of political will from Westminster. Under this government, ‘Green’ capitalism has been shown comprehensively to have failed.
We need a New Green Deal. If government can create £350bn of Quantitative Easing for the banks, they could easily do the same for the real economy and real people. But do not expect to get such a solution from Osborne and the Tory/LD coalition.
This is described as a ‘hedgehog’ chart because of the various lines indicating the changes to the Bank forecasts over time. Chris Giles highlights the fact that this is the first time since 2007 that the Bank has produced an improved forecast, which raises projected GDP growth from 0.9% to 1.2% in 2013. This is shown on the chart as the difference between the orange and green spikes on the chart.
In reality, the Bank’s forecasting record is an extremely poor one. The November 2007 forecast (the purple line in the chart) was made just a few months before recession began in the 2nd quarter of 2008. This was the deepest recession since the 1930s. Yet the Bank was not forecasting any contraction in output at all. The various ‘hedgehog’ spikes arise because it has continually forecast a rapid return to growth that did not materialise.
The upward revision to the forecast this year is minimal, comprising just 0.3% of GDP. For many people, and not just supporters of austerity like Chris Giles, there is a hope that this upward revision to forecasts is the beginning of a trend and that there will be a continuous upward revision of forecasts as the outlook improves.
Yet the focus on such a slight revision to the growth outlook seems misplaced, and not just because it could be altered in either direction. Even before the slump the British economy was not growing at a fast pace by international standards. A return to prosperity would imply a rejection of permanently lower growth and a return to the previous trend. Instead the Bank’s forecasts imply a further widening of the gap between the future growth of the economy and its pre-recession trend.
This is the real scale of the economic crisis and the issue which is of primary importance. Currently the gap between the level of output and the economy’s former trend is approximately 16% of GDP.
This gap will continue to widen so that any new government will be faced with a shortfall in output of approximately 20% of GDP. In current prices, these are in the region of £250bn to £300bn.
This is a measure of the effects of both recession and austerity. Therefore it is also a measure of the scale of the task facing any new government that wants to end them.
Yesterday for me was just a (*collective noun) of paradoxes.
Last week, the puppy chewed up my daughter’s phone. She ordered a new one on line but was not in when UKmail tried to deliver it. She went to their website but there was no option to arrange a re-delivery date. Instead, there was a phone number. She doesn’t have a phone because the dog ate it. So she facebooked me the consignment number and asked me to contact UKmail for her. I duly phoned and waited the prerequisite 25 minutes for an operator (obviously they explained that they were experiencing high traffic volume – there are 2.6m people looking for a job but doubtless my phone call, contributed to their profit margin)
However, in spite of having the consignment number and only wanting to tell them to deliver it on Monday morning, I was not allowed to say anything because of ‘data protection’!
My daughter would have to phone… but my daughter hasn’t got a phone…. UKmail have her phone. Catch 22 and left me wondering how many fraudulent phone calls they get from people with the consignment details?
At the same time, the Guardian revealed that all my emails, facebook messages, telephone conversations etc have been picked up by the US and passed on to GCHQ… In fact, they already know the details of my history with UKmail and my daughter’s phonelessness.
Data protection?
Meanwhile, another daughter had a migraine and Ibuprofen was not working. We had also run out of soluble paracetamol and codeine, which I need for me, but makes my daughter vomit.
So I went to the local chemists, knowing that I’d also have to drive to another one, 4 miles away, because of not being allowed to buy more than 32 tablets containing paracetamol…. Health and Safety legislation.
However, when I tried to buy one of the various over-the-counter migraine tablets that I’ve bought in the past, I found that all the local pharmacists now require a consent form to be filled in first … and you guessed it. My daughter had to fill it in. But my daughter couldn’t go and fill in the form because she had a migraine…..
Presumably, the consent form is to prevent my daughter from suing the pharmacist … However, with the removal of legal aid, they don’t really need to be so worried.
I couldn’t help but wonder where were the consent forms applying to activities of the financial sector … let alone to prevent fracking? Then I remembered – fracking was one of the major reasons why the Tories are restricting Judicial Review.
Furthermore, when it comes to Health and Safety, why aren’t they prosecuting this Tory/LD government for doing nothing to regulate the banks or stop us heading for another financial crash?
Where is Health and Safety when it comes to removing peoples’ benefits; forcing people out of their jobs and homes? What about the massive rise in food banks; the cutting back of social care; or the suggestion that one child minder could safely look after 6 two year olds… ? I could go on.
But to return to my paradoxical day.
When I told my eldest daughter about my frustrations, she said:
“You should have said that the phone/tablets were for you.”
And of course, that is exactly what this government does. It lies!
They know that we do not want the NHS privatized so they say that its safe in their hands and is not being sold off. They pledge not to raise tuition fees. They say that the cuts are necessary because of the last Labour government. They say that its critical that the deficit and the debt must be brought down whilst doing the opposite. They say that people on benefits or unemployed are skivers. They say that the economy is recovering……
But more pertinently, in the current context… the Tories are lying about the need to introduce a ‘Snooper’s bill’.
Why do they need a ‘Snooper’s bill’? The US are already doing the ‘snooping’ for them!
In fact, I was puzzled at the time by the US and the UK voting against the International Telecommunications Union bill to restrict the internet in Dubai last December… not least because of ‘British government’s current draft communications bill which would produce a system of blanket collection and retention of all online data.’
The International Telecommunications Union (ITU), a UN organisation that counts 193 countries as its members, aims to add the internet to its existing regulatory roles…. Its goal is to establish government-led “international norms and rules standardising the behaviour of countries concerning information and cyberspace”
The most subversive proposal is the plan to force internet provider companies to monitor data and restrict their services to uses deemed ‘rational’ by the government of that country.’
Brendan Barber, general secretary of the TUC, said “These decisions will have a huge impact on freedoms and the everyday use of the internet [that] people take for granted and most people would be shocked to know that something so major could be happening amongst such secrecy.”
Tribune Magazine November16-29 2012 p.1
Furthermore… one of the worrying aspects of the leaks from TPP documents suggests that a version of SOPA could be introduced by the backdoor, limiting internet freedom and internet privacy rights. It is reasonable to assume that similar attempts will be made to include these in the US-EU Free Trade Agreement that is being rushed through in secret negotiations for 2014.
So why did the US and UK vote against the ITU bill limiting internet freedom?
It may be that the US and UK votes were another ‘lie’, a ‘blind’ for public consumption, thus maintaining the mythology of free speech and democracy… and/or it may be that the US did not want their freedom to snoop restricted by foreign governments. Whatever, the explanation, it is clear that there has been considerable double-speak and a massive invasion of personal privacy. Those who say that they have nothing to hide in being ‘snooped’ upon should think twice about how wise it is to trust governments who do not in any sense ‘play fair’ or transparently.
Furthermore, is it wise to trust a government that constrains ordinary commonsense behaviour by the public, in the name of Data protection/Health and Safety legislation but totally ignores the risks to, and the rights of that population in favour of protecting the freedom of the corporations, finance and the super-rich? Capitalism has always had to find a balance between the accumulation of wealth for the few and the danger of precipitating riots and revolt from the masses. To that end, intrusive surveillance, curtailing access to information, and over-controlling the behaviour of the mass population makes total sense.
There is one set of rules for them and another for us.
Pathetically, I can only hope that the Guardian revelations have given Obama and the Tory/LDs a migraine .. and that they have as much trouble as I did to get painkillers.
*Suggestions for a collective noun for paradoxes from all SORTSA LINGUISTIC EXPERIMENT:
Now I wonder what collective noun I could find for the coalition government….
