At times, like Thursday’s release of the latest GDP figures, I begin to wonder whether I’ve really lost the plot. The news headlines and reading the mainstream media financial sections just do not make any sense… they seem to take Expansionary Fiscal Contraction*, Osborne’s economic strategy, at face value …. and their only question, is how long will the recovery will take!
(*The clue is in the name … simultaneous expansion/ contraction.)
Perhaps unsurprisingly, the best example of this ‘madness’, is the Telegraph’s GDP figures vindicate the Coalition’s fiscal strategy …(1) This echoes David Cameron’s sound-bite that ‘Today’s figures prove that we’re on track!’ Whilst George Osborne tried hard not to sound triumphal when he said that ‘The economy is healing.’
Fortunately, the intervening days have brought plenty of reactions which chime more nearly with my understanding. Michael Meacher’s description is, as always, particularly insightful. :
Clearly the worst of the recession is far from over, but we have been festooned with an all-out PR blitz to convince us that it is. What it really exposes is how utterly desperate Cameron is to escape the impression ( and the political consequences) of endless austerity whilst at the same time tightening the screw to make sure it bites even deeper. (2)
The simplest way to understand George Osborne’s economic strategy is to consider its analogy to ‘asset strippers’ like Romney’s private equity investment firm Bain Capital…
Asset strippers are a form of corporate raiders that focus their attention on a target company. The goal is to gain ownership and control of the company over time. Once the company is in the control of an asset stripper, various assets of the company are sold off, often in order to handle the outstanding debt incurred when gaining control of the company. The strategy involves making sure there is a strong chance that once a portion of the company’s assets have been sold, the remaining assets will still be sufficient enough to operate the company at a profit or make the company attractive to potential buyers. (3)
Which suggests that George Osborne’s task is to keep a balance between totally crashing the economy and still ensuring that it is sufficiently debilitated to justify ‘austerity’, which in turn justifies privatizing public services, lowering taxes for the corporations and the rich, lowering wages and shrinking benefits…
Conservative economist and journalist, Ramesh Patel more or less agrees with this assessment:
‘Finally! Exposed! The Deficit Myth! So, David Cameron When are you Going to Apologise?’ (4)
‘… as the truth is the greatest enemy of the a lie I urge you to share this on Facebook, Twitter, Blogs, text and email … So the truth can be discovered by all. Finally, have no doubt, people have been misled by the use of the following strategy:
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it” Joseph Goebbels
What is the big lie that Patel exposes?
Cameron is playing the blame game to depress confidence and growth to justify austerity. Secondly, to use austerity as justification for a smaller state to gain lower taxes. Thirdly, to paint Labour as a party that can not be trusted with the country’s finances again. Therefore, we Conservatives will win a second term because, people vote out of fear. The latter strategy worked the last time in office (18 years) and will work again because, in the end, elections are won and lost on economic credibility. Hence, as people believe Labour created the mess they won’t be trusted again. (4)
To be honest, this is hardly news to left-wing bloggers but finally, the Osborne/Cameron lies about the economy are being refuted by one of their own. As the quote suggests:
Everyone is entitled to their own opinions, but they are not entitled to their own facts.
What are the three deficit claims that Ramesh Patel exposes as untrue?
Below are the 3 deficit claims – the mess. The evidence comes from the IMF, OECD, OBR, HM Treasury, ONS and even George Osborne. The claims put into context are:
CLAIM 1 The last government left the biggest debt in the developed world.
After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7? Watch: Also, confirmed by the OECD Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.
Its common sense, in cash terms a millionaire’s debt would be greater than most people. Therefore, the UK would have a higher debt and deficit than most countries because, we are the sixth largest economy. Hence, its laughable to compare UK’s debt and deficit with Tuvalu’s who only have a GDP/Income of £24 million whilst, the UK’s income is £1.7 Trillion.
Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crises 2008 the debt had fallen to 35% – a near 22% reduction page 6 ONS Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down?
CLAIM 2 Labour created the biggest deficit in the developed world by overspending.
Firstly, the much banded about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was -7.7% – OBR Economic and Fiscal Outlook March 2012 page 19 table 1.2
Secondly, in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget ) and by 2008 it had fallen to 2.1% – a reduction of a near 50% – Impressive! Hence, it’s implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crises after 2008. See HM Treasury. Note, the 1994 deficit of near 8% haaaaaah!
Thirdly, the IMF have also concluded the same. They reveal the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It’s basic economics: when output falls the deficit increases.
Finally, the large loss in output occurred because the UK like the US have the biggest financial centres and as this was a global banking crises we suffered the most. Hence, the UK had the 2nd highest deficit in the G7 (Not The World) after the US and not as a result of overspending prior to and after 2008- as the IMF concur.
Claim 3 Our borrowing costs are low because the markets have confidence in George Osborne’s austerity plan and without it the UK will end up like Greece.
Yes, the markets have confidence in our austerity plan and that’s why PIMCO the worlds largest bond holder have been warning against buying UK debt.
The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased. As a result, the demand and price for bonds have increased and as there is inverse relationship between the price of bonds and its yield (interest rate) the rates have fallen. Also, the markets expect the economy to remain stagnate. Which means the price for bonds will remain high and hence, our borrowing costs will also remain low.
Secondly, the UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off – which increases the price of bonds and reduces the effective rate. Note, how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because, we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because, we haven’t defaulted on its debt for over 300 yrs.
David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and I.
Overall, when the facts and figures are put into context these juvenile deficit narratives and sound bites (“mere words and no evidence”) simply fail to stand up to the actual facts. The deficit myth is the [most] gross lie ever enforced upon the people and it has been sold by exploiting people’s economic illiteracy. (4)
So, David Cameron when are you going to apologise? But more importantly, when and how are we going to stop George Osborne in his economy-wrecking, asset-stripping spree? The economy is currently foundering because of a lack of demand, not the deficit or government overspending. The last word is left to Michael Meacher MP:
The root cause of this global dilemma is that for the last 30 years, growth under conditions of neoliberal capitalism has been driven by financialisation of the economy, in particular the use of debt to create demand. It has been assisted also by steadily phasing out constraints on trashing the environment and by mis-pricing non-renewable natural resources like oil and water, all in the false name of puffing up demand and thereby future profits. Debt does allow consumption and investment to be enhanced in the short term, but of course it has to be paid back in the future. It warps the production-consumption balance between the present and the future, and if allowed to get out of hand generates unsustainable imbalances. This is exactly what has happened….. Expansionary fiscal contraction, Osborne’s fantasy model, has been revealed as the pretence it always was. (5)
Cameron and Osborne dwell on Bullshit Mountain, UK
THE UK’S BUDGET DEFICIT IS RISING NOT FALLING
Reblogged this on syzygysue.
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Excellent article, but I need to make one recommendation for the sake of historical accuracy. The notorious Joseph Goebbels quotation that Patel used on HuffPost should probably be left out, because as far as we can tell, Goebbels never really said it. It’s one of the great urban myths (and one that makes little sense; a propagandist openly declaring himself to be a liar rather defeats the point of his own work).
It’s a small point, but I wouldn’t want to give any right-wingers a cheap route to claim that the article is discredited.
Thanks. Think we’ll leave your comment to make the point rather than alter the post after such a length of time.
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It’s a myth the tories are cutting spending. Public spending is increasing every year. There are no austerity measures – it’s all media smoke and mirrors for some reason reported in the main stream press and the tories, for a reason I don’t understand, are going along with the ruse they’re slashing spending when actually they’re doing the reverse.
Labour’s financial management was awful while they were in power. I’m not disagreeing about the size of their debt and deficit in 2008, the part that is unexcusable is they were running a deficit and a debt at all after presiding over one of the, if not the, largest economic booms in history.
Instead of saving the money for a rainy day they were massively increasing the welfare state, trying to bribe future voters by making more dependent on benefits. Now the tories are trying a different bribery strategy by paying their mortgage deposit for an overpriced home…but that’s a different topic for another time…
I’m afraid that you are rather misunderstanding macroeconomics – no surprise given the way the words ‘debt’ and ‘deficit’ are used in common parlance … and to deliberately confuse by politicians like Osborne et al. But you are right, Osborne has not cut spending just where the spending goes ie. redistribution of wealth upward and offshore.
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