We are living in the midst of an economic meltdown, which as the latest economic figures reveal is being made worse not better by a chancellor whose incompetence and mendacity is now beyond doubt.
The damning revelation that the UK economy shrunk by 0.3 percent in the last quarter of 2012 now sees the country headed for a triple dip recession, an economic calamity which calls for an immediate moratorium by the government on its present course and a reversal of its addiction to austerity. If not for the brief and mini economic boom provided by the Olympics, the UK economy would have likely registered negative growth for the whole of last year, and thus have made history for all the wrong reasons.
It really does not take a genius to understand that the nation’s overall debt is being made worse as a consequence of low consumption, increasing unemployment and underemployment, and a concomitant decrease in tax revenues. As a result, and by any objective reckoning, the government’s economic policy has been a disaster.
The difficulty is that a change in the policy being followed and failing so abjectly will by definition involve a step-change in ideology. Why? Because the economic strategy that is being implemented by this government is the product of ideological blinkers and not sound economic theory.
Since the economic crisis first hit these shores at the beginning of 2008 the glaring weakness in the economy has been a collapse in demand. The deficit grew in the wake of the crisis as the previous Labour government increased borrowing to fill the gap of plunging tax income on the back of rising unemployment, businesses going bust, and an increase in people claiming benefit, not to mention the need to bail out the banks to tune of £500 billion. Without this intervention the UK economy would have collapsed completely.
Now, five years on, and after two and a half years of a Tory-led coalition government, the official number of unemployed in the UK, according to the most recent figures released by the Office for National Statistics, is 2.49 million, a decrease of 37,000 compared to the previous quarter. However these figures are for the third and last quarter of 2012. The number of people in full time employment fell by 341,000 between September and November 2012, while the number of people in part time employment increased by 660,00.
But rather than takes steps to tackle the causal factors responsible, the present government has focused almost entirely on the symptoms – i.e. getting the deficit down by slashing spending, including benefits, even though this can only deepen the recession rather than produce a recovery.
As the US economist and nobel laureate Paul Krugman asserts: “Economics is not a morality play.”
Yet this has been precisely the approach to the crisis by Osborne, Cameron, Clegg et al. In this morality play it has been overspending, a jamboree of consumption, which has led us to the mess we’re in. And, now, in order to clear it up, a national exercise in economic self flagellation is required.
Clearly, given the lack of comparable measures introduced to dole out some of the resulting pain to the rich, this national exercise is to be restricted to the poor and ordinary working people – the undeserving poor as opposed to the deserving rich, you might say – making this a Victorian morality play.
Strip away the government’s rhetoric over the need to cut spending, the solution to this ongoing economic depression is really very simple. Bringing down the deficit requires growth; growth requires a resurgence in spending; and a resurgence in spending requires the reintroduction of demand into the economy.
This is where the locus of government intervention must be, as the investor and lender of last resort to stimulate economic activity. Investing in infrastructure projects such as housing, roads, transport, the emerging green economy, schools, hospitals, etc will create jobs, which in turn would get people off benefits and back to paying tax and spending in the real economy, thus producing a multiplier effect. Businesses do not create jobs – this is one of the great myths of modern political and economic discourse – consumers create jobs.
But no one should be in any doubt that the obsession with deficit reduction on the part of the government is really an obsession with keeping the markets happy, which brings into sharp focus the issue of sovereignty. However even here it doesn’t take a leap of logic to understand that of more importance to the ever-mystical bond markets is the introduction of measures designed to lift the economy out of depression and thus make the prospect of a decent return on UK bonds better over the short to medium term than it is at present. With interests rates at zero and unable to be reduced any further, this requires the implementation of a fiscal stimulus to create the demand already mentioned.
The billions in taxpayers’s money handed to the banks via Quantitative Easing has barely touched the real economy. Banks are refusing to lend at the same time as there are no consumers creating the demand that businesses need in order to expand. When it comes to the thousands of small to medium businesses that need to borrow to cover the gap between normal operating costs and income, by this point increasing numbers of those have either gone to the wall or been forced to contract as a direct consequence of an ongoing cycle of deepening recession.
Which brings us back to the question of ideology.
The financial and banking meltdown which hit the global economy just over five years ago was an economic 9/11. And just as that terrible event gave the Bush administration its pretext for going to war in Iraq, its economic equivalent was the pretext needed by the Tories to set about rolling back the state in Britain. The attack unleashed on the public sector, the attacks on benefits, pay and conditions across the board, has been accompanied by the demonisation of each of the aforementioned demographics. In other words, the economic crisis has seen class war declared in order to push through the structural readjustment of the economy and with it society in general. The public sector, a necessary ballast of demand through good times and bad, has effectively been declared the enemy within as part of this process.
This is the context in which these latest economic figures should be considered.