By Johann Hari
British politics today is dominated by a lie. This lie is making it significantly more likely you will lose your job, your business, or your home. The lie gives a false explanation for how we came to be in this crisis, and prescribes a medicine that will worsen our disease. Yet it is hardly being challenged.
Here’s the lie. We are in a debt crisis. Our national debt is dangerously and historically high. We are being threatened by the international bond markets. The way out is to eradicate our deficit rapidly. Only that will restore “confidence”, and therefore economic growth. Every step of this program is false, and endangers you.
Let’s start with a fact that should be on billboards across the land. As a proportion of GDP, Britain’s national debt has been higher than it is now for 200 of the past 250 years. Read that sentence again. Check it on any graph by any historian. Since 1750, there have only been two brief 30-year periods when our debt has been lower than it is now. If we are “bust” today, as George Osborne has claimed, then we have almost always been bust. We were bust when we pioneered the Industrial Revolution. We were bust when we ruled a quarter of the world. We were bust when we beat the Nazis. We were bust when we built the NHS. Or is it George Osborne’s economics that are bust?
Our debt is not high by historical standards, and it is not high by international standards. For example, Japan’s national debt is three times bigger than ours, and they are still borrowing at good rates.
David Cameron claims that, despite these facts, they need to cut our debt by slashing our spending because the bond markets demand it. If they do not obey, then our national credit rating will be downgraded, and we will have to pay much higher interest on our debt. But here’s the flaw in that plan. That’s not what the bond markets say. Not at all. Professor Paul Krugman, the Nobel Prize-winning economist whose predictions have consistently proved right through this crisis, says Cameron is conjuring up “invisible bond vigilantes” who “don’t exist.” Who is the bond market really punishing? It’s the countries that cut too fast, and so kill their economic growth. The last two nations to be down-graded were Ireland and Spain, who followed Cameron’s script to the letter.
It turns out that cutting our debt rapidly doesn’t cause an increase in “confidence” and so save the economy. Professor Krugman mocks this idea by calling it “The Confidence Fairy,” and goes through the historical record to show she doesn’t exist. Cutting doesn’t create fairy-magic. No: it has a very different effect.
Here’s what we learned during the Great Depression, when our view of economics was revolutionized by John Maynard Keynes. In a recession, private individuals like you and me, perfectly sensibly, cut back our spending. We go out less, we buy less, we save more. This causes a huge fall in private demand, and with it a huge fall in economic activity. If, at the very same time, the government cuts back, then overall demand collapses, and a recession becomes a depression. That’s why the government has to do something counter-intuitive. It has to borrow and spend more, to apply jump-leads to the economy. This prevents economic collapse. Instead of spending a fortune on dealing with mass unemployment and economic break-down, with all the misery that causes, it spends the money on restoring growth. Keynes called it “the paradox of thrift”: when the people spend less, the government has to spend more.
Wherever it has been tried, it has worked. Look at the last Great Depression. The Great Crash of 1929 was followed by a US President, Herbert Hoover, who did everything Cameron demands. He cut spending and paid off the debt. The recession grew and grew. Then Franklin Roosevelt was elected and listened to Keynes. He ramped up spending – and unemployment fell, and the economy swelled. Then in 1936 he started listening to the Cameron debt-shriekers of his day. The result? The economy collapsed again. It was only the gigantic spending of the Second World War that finally ended it.
It is working now. There are enough countries in the world trying enough different economic solutions that we examine them like laboratories. which countries have come out of this recession fastest? They are the ones like South Korea, which have had by far the biggest stimulus packages, paid for with (yes) higher debt. Which countries have fallen furthest and shattered most severely? The ones that tried to pay down their debts immediately with huge cuts.
Indeed, there’s an irony here. It turns out that if all you do is fixate on paying your debt now now now, and so you smother your economic growth, you will end up not being able to pay your debts off anyway. That’s what just happened to our nearest neighbor Ireland, may she rest in peace. And it’s what has happened throughout British history. Professors Victoria Chick and Ann Pettifor conducted a detailed study of the last ten recessions, and they found that consistently “fiscal consolidation increases rather than reduces the level of public debt as a share of GDP.” Think of it this way. It’s as if tomorrow you became so panicked about your mortgage that you decided to pay it all off in one year, by ceasing to buy food and water. You get sick, and your house gets repossessed.
So debt isn’t the problem. Debt is part of the cure. The facts suggest need to spend more, not less, to get the economy back to life – and pay back the debt in the good times, when we will be able to afford it.
I am not a doctrinaire defender of the last Labour government. I think Tony Blair should be in prison, and Gordon Brown will be damned by history for his role in deregulating the banks – the real cause of this crisis. But to claim that this crisis was caused by Labour “racking up debt” is simply false. When the Great Crash hit, Britain had the second-lowest debt in the G7 club of leading economies. To react to a recession by increasing spending, and so keeping the economy afloat, is the only rational response. The real criticism is that they didn’t go anything like far enough, and now Ed Miliband’s Labour Party is now too cowardly to defy the false conventional wisdom and make the case for fiscal stimulus, instead promising merely slower, smarter cuts.
The real reason why David Cameron is imposing these massive cuts has nothing to do with the national debt. It is because he regards himself as, in his words, “the child of Thatcher”, and he wants to pursue her agenda harder and faster than she ever dreamed. He can do the difficult job of selling that to the British people if he wishes – but he should stop doing it on the basis of a swollen, suppurating lie.
For further updates on this issue, you can follow Johann on Twitter at www.twitter.com/johannhari101 and listen to his podcast here.
Showing posts with label Johann Hari. Show all posts
Showing posts with label Johann Hari. Show all posts
Thursday, 31 March 2011
Thursday, 21 October 2010
Britain just became a colder, crueller country - and for nothing
By Johann Hari
Johann Hari is an award-winning journalist who writes twice-weekly for the Independent, one of Britain's leading newspapers, and the Huffington Post. He also writes for a wide range of other international newspapers and magazines. Publication of this article does not necessarily imply endorsement of every comment expressed therein.
Margaret Thatcher is lying sick in a private hospital bed in Belgravia – but her political children have just pushed her agenda further and harder and deeper than she ever dreamed of. When was the last time Britain’s public spending was slashed by more than 20 percent? Not in my mother’s lifetime. Not even in my grandmother’s lifetime. No: it was in 1918, when a Conservative-Liberal coalition said the best response to a global economic crisis was to rapidly pay off this country’s debts. The result? Unemployment soared from 6 percent to 19 percent, and the country’s economy collapsed so severely that they lost all ability to pay their bills and the debt actually rose from 114 percent to 180 percent. “History doesn’t repeat itself,” Mark Twain said, “but it does rhyme.”
George Osborne has just gambled your future on an extreme economic theory that has failed whenever and wherever it has been tried. In the Great Depression, we learned some basic principles. When an economy falters, ordinary people – perfectly sensibly – cut back their spending and try to pay down their debts. This causes a further fall in demand, and makes the economy worse. If the government cuts back at the same time, then there is no demand at all, and the economy goes into freefall. That’s why virtually every country in the world reacted to the Great Crash of 2008 – caused entirely by deregulated bankers – by increasing spending, funded by temporary debt. Better a deficit we repay in the good times than an endless depression. The countries that stimulated hardest, like South Korea, came out of recession first.
David Cameron and George Osborne have ignored all this. They have ignored the warnings of the Financial Times, the newspaper most critical of their strategy. They have dismissed the warnings of Nobel Laureates for Economics like Paul Krugman and Joseph Stiglitz, whose warnings have consistently been proven right in this crisis. They have refused to learn from the fact that the country they held up as a model for how to deal with a recession – “Look and learn from across the Irish Sea,” Osborne said – has suffered the worst collapse in the developed world. They have instead blindly obeyed the ideological precepts they learned as baby Thatcherites: slash the state, and make the poor pay most.
Osborne galloped through his Comprehensive Spending Review (CSR) speech, failing to name almost any of the services that will be slashed or shut down. It’s revealing that he doesn’t want to publicly name them while the nation is watching.
But beneath the statistics, there was a swathe of human tragedies that will now unnecessarily unfold across Britain. PriceWaterhouseCooper – nobody’s idea of a Trotskyite cell – says that a million people will now lose their jobs as a direct result. My father lost his job at the height of the last Tory recession, and had to leave the country to get another one. I remember how that felt. I remember what that did to my family. Now it’s going to happen to a million more families – and probably more after that. For the private sector to get all these people into work, as Osborne claims, there would have to be the most rapid business growth in my lifetime. Does anyone think that will happen?
Osborne has chosen the weakest people to take the worst cuts. The poorest sixteen year olds were given £30 a week to stay on in education, so they could afford to study – until Osborne’s team dismissed it as a “bribe” and shut it down. The most frail old people depend on council services to wash them and feed them – yet Osborne just slashed their budget by 30 percent, which service providers say will mean more pensioners being left to die in their own filth. Every family living on benefits is set to lose an average of £1000 a year – which, as I’ve seen from living in the East End of London, will mean many poor kids across Britain never getting a birthday party, or a trip to the seaside, or a bed of their own, or a winter coat. This isn’t just On Yer Bike, it’s On Yer Own.
The irrationality of this approach is perhaps plainest when you look at housing. We badly need more affordable housing in Britain. Some 4.5 million people are stuck on waiting lists, and the average age of a home buyer is now 37. It’s a cause of constant stress to the real middle class and despair for the poor. By a happy coincidence, house-building is one of the best stimulators of the economy: it employs a lot of people on average wages, who then spend their money quickly in a “multiplier effect.”
Yet Osborne has chosen the opposite. There will be on average one new home built per week in the whole of London and the south-east. That’s one. Indeed, instead of building homes, he’s driving people out of them. By slashing housing benefit, London councils alone say 83,000 people here are going to be forced to leave their homes, with 1.3 million ending up in more debt. Cameron has revealed that his baby daughter sleeps in a cardboard box decorated for her by her big sister. Thanks to him, a lot more people are going to be sleeping in cardboard boxes soon.
It can’t be coincidental that this is being done to us by three men – Cameron, Osborne, and Nick Clegg – who have never worried about a bill in their lives. On a basic level, they do not understand the effects of these decisions on real people. Remember, Cameron said before the election: "The papers keep writing that [my wife, Samantha] comes from a very blue-blooded background", but "she is actually very unconventional. She went to a day school." Osborne lives in a £4m trust fund he did nothing whatsoever to earn, and which is stashed offshore to prevent it being taxed. Clegg actually thought the state pension was £30 a week, a level that would kill pensioners.
These attitudes have real consequences. We’re not in this together. Who isn’t in it with us? Them, their friends, and their families. They were asked to pay nothing more in this CSR. On the contrary: they are being let off left, right and centre. To pluck a random example, one of the richest corporations in Britain, Vodafone, had an outstanding tax bill of £6 billion – but Osborne simply cancelled it this year. If he had made them pay, he could have prevented nearly all the cuts to all the welfare recipients in Britain. You try refusing to pay your taxes next time, and see if George Osborne shows the same generosity to you as he does to the super-rich.
There is one stark symbol of how unjust the response to this economic disaster caused by bankers is. They have just paid themselves £7bn in bonuses – much of it our money – to reward themselves for failure. That’s the same sum Osborne took from the benefits of the British poor yesterday, who did nothing to cause this crash. And he has the chutzpah to brag about “fairness.”
Britain just became colder and crueler country. And for what? To pantingly follow a disproven ideology over a cliff. On the eve of the general election, Cameron told us: "There'll be no cuts to frontline services," "we're not talking about swingeing cuts,” and “all cuts will be fair.” Is it possible to call him anything but a liar and an ideologue today?
You can enjoy a long rest, Baroness Thatcher – your successors have embarked on a Mephedrone-charged imitation that exceeds your most fantastical dreams.
Johann Hari is an award-winning journalist who writes twice-weekly for the Independent, one of Britain's leading newspapers, and the Huffington Post. He also writes for a wide range of other international newspapers and magazines. Publication of this article does not necessarily imply endorsement of every comment expressed therein.
Margaret Thatcher is lying sick in a private hospital bed in Belgravia – but her political children have just pushed her agenda further and harder and deeper than she ever dreamed of. When was the last time Britain’s public spending was slashed by more than 20 percent? Not in my mother’s lifetime. Not even in my grandmother’s lifetime. No: it was in 1918, when a Conservative-Liberal coalition said the best response to a global economic crisis was to rapidly pay off this country’s debts. The result? Unemployment soared from 6 percent to 19 percent, and the country’s economy collapsed so severely that they lost all ability to pay their bills and the debt actually rose from 114 percent to 180 percent. “History doesn’t repeat itself,” Mark Twain said, “but it does rhyme.”
George Osborne has just gambled your future on an extreme economic theory that has failed whenever and wherever it has been tried. In the Great Depression, we learned some basic principles. When an economy falters, ordinary people – perfectly sensibly – cut back their spending and try to pay down their debts. This causes a further fall in demand, and makes the economy worse. If the government cuts back at the same time, then there is no demand at all, and the economy goes into freefall. That’s why virtually every country in the world reacted to the Great Crash of 2008 – caused entirely by deregulated bankers – by increasing spending, funded by temporary debt. Better a deficit we repay in the good times than an endless depression. The countries that stimulated hardest, like South Korea, came out of recession first.
David Cameron and George Osborne have ignored all this. They have ignored the warnings of the Financial Times, the newspaper most critical of their strategy. They have dismissed the warnings of Nobel Laureates for Economics like Paul Krugman and Joseph Stiglitz, whose warnings have consistently been proven right in this crisis. They have refused to learn from the fact that the country they held up as a model for how to deal with a recession – “Look and learn from across the Irish Sea,” Osborne said – has suffered the worst collapse in the developed world. They have instead blindly obeyed the ideological precepts they learned as baby Thatcherites: slash the state, and make the poor pay most.
Osborne galloped through his Comprehensive Spending Review (CSR) speech, failing to name almost any of the services that will be slashed or shut down. It’s revealing that he doesn’t want to publicly name them while the nation is watching.
But beneath the statistics, there was a swathe of human tragedies that will now unnecessarily unfold across Britain. PriceWaterhouseCooper – nobody’s idea of a Trotskyite cell – says that a million people will now lose their jobs as a direct result. My father lost his job at the height of the last Tory recession, and had to leave the country to get another one. I remember how that felt. I remember what that did to my family. Now it’s going to happen to a million more families – and probably more after that. For the private sector to get all these people into work, as Osborne claims, there would have to be the most rapid business growth in my lifetime. Does anyone think that will happen?
Osborne has chosen the weakest people to take the worst cuts. The poorest sixteen year olds were given £30 a week to stay on in education, so they could afford to study – until Osborne’s team dismissed it as a “bribe” and shut it down. The most frail old people depend on council services to wash them and feed them – yet Osborne just slashed their budget by 30 percent, which service providers say will mean more pensioners being left to die in their own filth. Every family living on benefits is set to lose an average of £1000 a year – which, as I’ve seen from living in the East End of London, will mean many poor kids across Britain never getting a birthday party, or a trip to the seaside, or a bed of their own, or a winter coat. This isn’t just On Yer Bike, it’s On Yer Own.
The irrationality of this approach is perhaps plainest when you look at housing. We badly need more affordable housing in Britain. Some 4.5 million people are stuck on waiting lists, and the average age of a home buyer is now 37. It’s a cause of constant stress to the real middle class and despair for the poor. By a happy coincidence, house-building is one of the best stimulators of the economy: it employs a lot of people on average wages, who then spend their money quickly in a “multiplier effect.”
Yet Osborne has chosen the opposite. There will be on average one new home built per week in the whole of London and the south-east. That’s one. Indeed, instead of building homes, he’s driving people out of them. By slashing housing benefit, London councils alone say 83,000 people here are going to be forced to leave their homes, with 1.3 million ending up in more debt. Cameron has revealed that his baby daughter sleeps in a cardboard box decorated for her by her big sister. Thanks to him, a lot more people are going to be sleeping in cardboard boxes soon.
It can’t be coincidental that this is being done to us by three men – Cameron, Osborne, and Nick Clegg – who have never worried about a bill in their lives. On a basic level, they do not understand the effects of these decisions on real people. Remember, Cameron said before the election: "The papers keep writing that [my wife, Samantha] comes from a very blue-blooded background", but "she is actually very unconventional. She went to a day school." Osborne lives in a £4m trust fund he did nothing whatsoever to earn, and which is stashed offshore to prevent it being taxed. Clegg actually thought the state pension was £30 a week, a level that would kill pensioners.
These attitudes have real consequences. We’re not in this together. Who isn’t in it with us? Them, their friends, and their families. They were asked to pay nothing more in this CSR. On the contrary: they are being let off left, right and centre. To pluck a random example, one of the richest corporations in Britain, Vodafone, had an outstanding tax bill of £6 billion – but Osborne simply cancelled it this year. If he had made them pay, he could have prevented nearly all the cuts to all the welfare recipients in Britain. You try refusing to pay your taxes next time, and see if George Osborne shows the same generosity to you as he does to the super-rich.
There is one stark symbol of how unjust the response to this economic disaster caused by bankers is. They have just paid themselves £7bn in bonuses – much of it our money – to reward themselves for failure. That’s the same sum Osborne took from the benefits of the British poor yesterday, who did nothing to cause this crash. And he has the chutzpah to brag about “fairness.”
Britain just became colder and crueler country. And for what? To pantingly follow a disproven ideology over a cliff. On the eve of the general election, Cameron told us: "There'll be no cuts to frontline services," "we're not talking about swingeing cuts,” and “all cuts will be fair.” Is it possible to call him anything but a liar and an ideologue today?
You can enjoy a long rest, Baroness Thatcher – your successors have embarked on a Mephedrone-charged imitation that exceeds your most fantastical dreams.
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