Austerity is a scam but green growth isn’t the answer either.

Yesterday, 3rd December, 2014, The UK Chancellor of the Exchequer, George Osborne, made his autumn statement in which he set out the government’s plans on the economy.

He confirmed that a Tory government will continue to cut public spending in the years to come. Indeed it turns out, “you ain’t seen nothing yet”. As the Office of Budget Responsibility puts it, the government’s plans mean that

Between 2009-10 and 2019-20, spending on public services, administration and grants by central government is projected to fall from 21.2 per cent to 12.6 per cent of GDP and from £5,650 to £3,880 per head in 2014-15 prices. Around 40 per cent of these cuts would have been delivered during this Parliament, with around 60 per cent to come during the next. The implied squeeze on local authority spending is similarly severe.

For a sound analysis of where these cuts will fall, see Richard Murphy’s piece, accurately titled: Osborne is planning to destroy society as we know it. What are we going to do about it?

Anyone with any compassion or sense of justice will be outraged by this continued policy of re-distribution: redistribution from the people to private capital, and from the poorer people disproportionately. Indeed, a lot of space is wasted in the press and the internet (by me too) in cathartically repeating that outrage.

And there is plenty of evidence that the plan won’t work – where the criteria for it working is what? That government spending (including borrowing) will fall below its receipts from tax and trade. And the recipe is based on a reversal of the what in the 1960s was called the Trade Gap, cuts to public spending, with no increase in taxation.

The question, then, (as Lenin once said in a rather different context) is “What is to be done?”. What policies would an alternative government follow?

First we need to dispense with the idea, shared by the Tories, Labour, The Liberals and that purple mob, that the deficit, and government debt, is a problem. Osborne and the Tories have spellbound the political establishment with Margaret Thatcher’s erroneous metaphor of a household budget. Yet national budgets don’t work in that way, chiefly because money is created and not based on its material referent. This is dealt with in more detail, and far more clearly than I could in a variety of sources, including the Bank of England’s Quarterly Bulletin 2014 Q1, and the sources listed below.

The radical conclusion from this is that the deficit is not a problem. As John Weeks concludes in a paper that names the austerity scam,

The fiscal deficit is not a problem. Quite the contrary, it is part of the solution to achieve a robust recovery. Except in rare circumstances, deficits and debt are responsible and safe. Deficits and debt are typically good things, contributing to social welfare. Public sector surpluses and the absence of debt are typically dysfunction, bad things for the well being of households and businesses.

To many if not most this characterization of deficits and debt is absurd. The first and fundamental step in understanding the functional role of public sector deficits is that rarely do they result from excessive spending. They result from recessions, as in the UK over the last six years.

But I am going to argue that the fight-back against austerity needs to do two things. In the next paragraph of John Weeks’s paper, he says:

In economically advanced countries such as Britain taxes on expenditures and incomes, of both households and businesses, increase to the point of overwhelming all other sources of revenue, such as tariffs and fees charged by governments. Income and sales taxes have two very useful characteristics. Governments find them easy to collect and they increase as the economy grows (and vice-versa). This may seem so obvious that it need not be explained, much less explained in tedious detail. (my emphasis)

Herein lies the problem. On the one had we have to deal with the nonsense that comes not just from the Tories, but the Labour front bench about balancing the books and paying down the debt.

As Manchester’s Colin Talbot puts it:

When did all three of Britain’s main political parties apparently become committed to a balanced budget?

The idea of a ‘balanced budget’ has long been a shibboleth of the US right, but it has rarely been on the agenda in Britain since the Great Crash in the 1930s. Yet suddenly all three parties seem signed up to it – with minor variations in their stance – without any political debate about its merits.

But on the other hand, we need to be clear that just relying on the economy growing can’t be the solution. You can’t grow your way out of the kind of combined economic, social and ecological crisis that we find ourselves in. The economy can’t stand it (where is all the demand, all the resources going to come from?). Society can’t stand it (how will we deal with the inevitable alienation, the failure to improve quality of life, the increases in inequality that growth drives?), and the planet can’t stand it (reversing the ecological and climate crisis will take more than a switch to renewable power and improved energy efficiency – we’d need to increase the annual rate of improvement in energy and materials efficiency ten-fold and ultimately we’d need an economy that used no materials at all, because they’d all have been used!).

This is where we meet a huge challenge. To win the battle against the austerity scam we have to make alliances with others But that means allying with those who have quite conventional, indeed uncritical, understandings of development, growth, prosperity. This can be seen in the alliance of post-Keynesians with ecological activists, both in the New Economics movement and in continental movements like Syriza and Podemos/Los Indignados.  We need to understand and use the insights from Keynesian thought (for example in the theory of money alluded to above), but not surrender to the idea that all we need to do for salvation is reflate demand and boot up the multipliers to restore GDP growth. And that goes for the green variant of (post-?) Keynesianism, the restart of the economy by investing in climate-friendly schemes like retrofitting housing with insulation, and renewable energy. If those things only lead to a resurgence of the treadmill of material consumption, all it will do is contribute further to alienation, status insecurity, inequality, and to human and natural exploitation on a global scale.

So far, I have not seen any convincing proposal for how the Green Keynesian approach can actually avoid restarting an economy that is lethal to life on earth, rather than taking us to an “economy for life”, the Viable Economy. I’m prepared to be persuaded ……..

Mark Burton

Sources on Modern Money Theory.

Cato, M. S. (2014). Can’t Pay, Won’t Pay: Debt, the Myth of Austerity and the Failure of Green Investment. In J. Blewitt & R. Cunningham (Eds.), “The Post-Growth Project: How the End of Economic Growth Could Bring a Fairer and Happier Society.” London: London Publishing Partnership.

Guinan, J. (2014). Modern money and the escape from austerity. Renewal, 22(3-4), 6–21.

Pettifor, A. (2014). Just Money: How Society Can Break the Despotic Power of Finance. London: Prime Economics.

Ryan-Collins, J., Greenham, T., Werner, R. and Jackson, A. Where Does Money Come From? London, NEF see

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5 Responses to Austerity is a scam but green growth isn’t the answer either.

  1. Yes, Austerity is a scam, punishing those who had nothing to do with the banking crisis, housing bubble collapse and tax avoidance and evasion. Unfortunately, the Government is still printing debt, Quantative Easing (QE), which it gives to the failed banks. They then use it to shore-up their reserves, whilst lending some of the money at high interest rates. Even thoughthe Bank of England set interest rates at 0.5%. With the Government’s (and Manchester City Council) push for more ‘homes-to-buy’ or ‘affordable homes’, which only benefits property developers, property speculators, the management and shareholders of construction companies. The Government is only building another bubble, which will shortly burst.
    The Government has made no attempt to plug the loop-holes that companies and corporations use to legally to avoid paying any UK tax. A point Richard Murphy does make several times in his blog: And as he points out, like all public services, staff is being cut at HMRC, when it should be strenghtened. The only people really benefitting from the tax cuts, are the rich, whilst widening the inequality gap in the UK. Just as Richard Leese states there will be no rise in council tax, benefits the rich more than those at the bottom.
    And whilst the Government is cutting funding to public services, it is able to fund private companies to take over parts of the NHS. Just like the PFI (public finance initiatives) that Labour introduced. Public owned assests are given to private companies, with the tax-payer then paying these companies to run them. As you point out, it is Labour, as well as Conservative policy to privatise all public services.
    I agree with you, that some Greens (Marxist-Anarchist), Natalie Bennett, refers to them and herself as being like melons! Who seem to think that putting money into infrastructure projects, like HS2, more roads, new nuclear and other schemes, will bring about an ecomonic recovery. Are just as out of touch with reality as are the main political parties.
    But I do disagree with you about the defecit as of being of no concern. Money may no longer be linked to the Gold Standard, but you cannot dismiss continued money printing as being immaterial. That is exactly what the Wheimar Republic in Germany was doing, to pay of the punative charges being made against it by the Allies. Look whatt happened to inflation there. The USA based credit agencies (the same ones who rated the failed banks), downgraded countries like Spain and Portugal. The had a better balance of payments than the UK, but they punished.

    • Many thanks for the comment and for all the points of agreement.
      With regard to the risk that the government spending money into existence creates run away inflation and other evils, this is a difficult question. My own view (and we’ve had debates within the SSM collective on this – something we want to explore further) is that these side effects can be controlled by appropriate use og governmental levers – chiefly taxation. As Richard Murphy (again) recently pointed out, taxation has several functions, none of which is raising revenue:
      1) It reclaims the money that a government has spent into an economy

      2) It reprices goods and services that the market misprices

      3) It redistributes income and wealth

      4) It raises representation in democracies as people are motivated to vote by tax

      5) It reorganises an economy

      6) It regulates money by giving it value in exchange by requiring that tax be paid using the state currency.
      If there is too much liquidity in the economy, then taxation is used to cool things down – literally if we move to a framework where taxationis based on propensity to damage ecological and social wellbeing (e.g. carbon tax).
      The other point is that the ability to create money has to be used responsibly, with a clear plan. This differs from the classic cases of “money-printing” leading to hyperinflation.
      So I think that by combining judicious governmental creation of money, with a set of counter-countrols to reduce useless consumption, and to protect the vulnerable (e.g. those with incomes vulnerable to inflation), there isn’t aproblem per se with the idea. To read more, see the article by Lawn in the bibliography on ecological economics on this site (see menu tabs).
      Mark Burton

  2. Reblogged this on patricktsudlow and commented:
    There is a Global movement calling for the end of ecocide: Something I think Mark Burton is striving for with Steady State Manchester. Manchester City Council, under Richard Leese and Howard Bernstein, have been pushing a policy of build, build and build more. This is offices, retail units, hotels and home-to-buy, when what is needed, is investement in front-line services and council housing. And as Mark points out, there are those, who are supposed to be ‘Green’, also wanting to follow the policy of build, build and more build. Which would would only drive climate change and inequality.
    That is why I was to come across the European Trade Union Institute pursuing: At the bottom is a link to a presentation, showing how austerity has driven inequality. One change I would make to the presentation, is slide 5. I would change the box with ‘Inclusive Growth’ in it, to ‘Inclusive Prosperity’.

  3. Pingback: Debating the alternative to austerity in Spain and the UK | Steady State Manchester

  4. Pingback: Hubble, bubble, double struggle: the coming elections. | Uncommontater

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