George Osborne will deliver what possibly will be his last Budget ever, on 18 March. He will try to sell austerity as a success and hope that the opposition try to outmatch him with more. This time, I don’t think they will. They are already thinking about the shape of a post-election coalition involving the Greens and the nationalists. Austerity will be quietly rejected.
For five long years the Chancellor has taunted Labour over the debt, the issue that will define his term of office. We were told we had to have austerity so solve the deficit they inherited which was going to push us back to the dark ages, lose our triple A international credit rating, make us a basket case like Greece. This always was hogwash, with austerity policies we did lose our triple A rating, despite, or perhaps because of, the policies Osborne introduced. Now the debt is worse than 2010.
The country has been tolerating – just about, the damaging stupidity of austerity. But Osborne will find it is austerity that damages his long-term reputation. Indeed, I think a whole neo-liberal view of economics will be destroyed by it.
Some figures: In 2010 our national debt (government net borrowing) was £1tn – it is now, roughly, fifty per cent more; consumer debt (including mortgages) was £0.76tn. It is now almost double. The current account deficit, which includes the trade deficit, the amount by which we are spending more than we are earning, was £12bn in 2010, now £27bn. The trade deficit is up from 5.5% of Gross Domestic Product in December 2014 to 6% now. In most of 2010 it was between 3.5% and 4%. This is the one that Osborne will worry about the most. The UK is now a prime currency crisis risk.
I had to check these figures because of course we are being told by the Government how well the economy is doing, no longer the sick man of Europe, the economic plan is working, we are growing our way out of trouble, the benefits of austerity are just around the corner. The truth is that on every measure our position now is worse than it was when the Conservatives came to power. If things are improving, it will be because they first made them worse.
Austerity is to blame. To raise taxes in a recession, [VAT,] was a major mistake which even the Tories now privately admit. But that is just a detail. Osborne hacked back at welfare and benefits, reduced social security protections for the most vulnerable (Working Tax Credits, disappearing in 2017), reduced staffing in the public sector, and drove many to become self-employed, often part-time, earning a poverty income. He should have looked at history, at no time has public austerity ever improved a country’s economic position in a debt crisis. Austerity has never worked.
The crisis lay with the banks. In 2007 the financial authorities of the world thought the the collapse of Lehman’s Bank could be isolated and would not infect the rest of the system. But there were too many worthless securities that secured un-repayable debt, often made to borrowers who could never have afforded the repayments. The whole system almost came down. It didn’t because the governments bailed out banks that, today, are buster than ever. They are kept going because governments know they have to be kept going. If the banks aren’t kept going then nothing keeps going, and governments will go bust too. That’s when shops close, food is no longer being distributed, cashpoint machines stop working, and people barter for things to eat.
The show was kept on the road by enforced public subscription, largely by the input of trillions of pounds and dollars of invented money. This is notionally ‘borrowed’ – governments give banks a bond and the banks give governments a load of money, which, often, governments then give back to the banks to shore up their balance sheets. All this activity with bonds keeps the price of a bond high and the yield, the amount the government has to pay to borrow like this, low. And so interest rates generally are low. Which hits savers and pensioners. Bonds are not popular with investors, because yields are low, and so they put lots of money into stocks and shares, which vastly out-perform their true value. Now we have a stocks and shares bubble. Governments are now terrified bond yields will go up, because if they do they might not be able to make the repayments on their loans. Governments are very nearly bust because tax revenues are so low. Revenues are low because people are not paying tax, because they are in work that pays so little or unemployed.
On top of this there is austerity. This is the real reason why debt is going up. People are having to borrow money to buy necessary goods for their families – like food. The interest on
this debt has to be paid. So less money is available to spend. So more money is borrowed.
Debt-fuelled growth has for a long time been the only game in town. It is a neo-liberal idea that says people to borrow because they are not productive at work, so the price of borrowing will rise so they have to become more productive at work and earn more and repay debt. But that is all rubbish. The price of borrowing cannot go up, because the government won’t allow it, while people are not becoming more productive because companies will not invest in machines and wages. Which brings us the the heart of the matter.
Productivity would normally rise when unemployment was falling – to remain competitive companies make more goods to sell so they can hire more expensive workers and give them better technology, so more productivity. But business knows there is no real recovery, they know people and banks and governments are all broke. There is no responsive market out there. Productivity gains would cost them money but in a stagnant market no one is buying. Survival is the only game in town.
Which brings me back to the balance of payments. Our budget deficit would not be a problem if the country was healthy. It would look after itself. But a 6% trade gap is astonishingly big for an
apparently successful economy. We are spending more than we are earning, more than ever this parliament. We have as a nation been borrowing more via printed money and via our credit cards. And we are barely able to pay the interest charges.
Once the markets take notice of all this, there will be an old-fashioned currency crisis as in the Seventies. Nobody will want our bonds which will be seen as worthless. And lo, the yields will go sky high. Nobody will want to lend us money, because we won’t be able to meet our payments. The IMF will once again be called in. But by then the crisis will be truly international, because the crisis is already international. It is not the Greens that have an unrealistic economic strategy based on sustainability, it is all the rest – including Chancellor Osborne, with their neo-liberal ‘grow forever’ illusions.