By Michael Faulkner
– July 18, 2010
It may be no exaggeration to say that most people are rather
ignorant concerning matters of economic policy. Those of a conspiratorial bent
might be forgiven for thinking that governments collude with bankers and the
wizards of finance to ensure that things stay that way. Since the multi-billion
bail out of the failed banks in 2008/9, most ‘informed’ opinion has taken it
for granted that severe ‘fiscal tightening’ is unavoidable if the deficit is to
be reduced during the course of this parliament. The differences between the
severity of the cuts projected by the outgoing government and those about to be
implemented by the Con-Lib coalition are simply ones of degree. That the
deficit must be reduced and eliminated, either in the short term or the medium
term, is taken for granted by the leaders of the three main political parties.
Since before the May election, but particularly since the coalition came into
office, most of the media has been insisting that the cuts which are about to
fall are unavoidable. The coalition partners have presented a united front in
claiming that the pain will be shared, that the rich will be hit as hard as the
poor, that all will be treated fairly.
Few voices are heard from outside this consensus. Those who
challenge the dominant orthodoxy have no place in government. The one prominent
Liberal Democrat, Vince Cable, who
before the election did warn against the Tories’ determination to start
slashing and burning immediately, has, since being elevated to cabinet office,
apparently been converted to the policy he until recently denounced as
disastrous. The critics are marginalized. The few opinion polls to have been
conducted since the budget suggest that a small majority of those questioned
think that the ‘austerity measures’ are necessary. But this is certain to
change once the axe has fallen and hit the poorest hardest. This will be quite
soon.
Even within the broad consensus (defined in terms of those
who all hold that severe fiscal tightening is necessary but differ about how
soon it should be implemented if a ‘double-dip’ recession is to be avoided) the
disagreements are pronounced. The parliamentary Labour party – now under
the interim leadership of Harriet Harman – is gaining some mileage by
focusing its guns on the Lib Dems, who are accused of betraying their own
members and the electorate who voted for them. There is great disquiet in the
Lib Dem ranks. Clegg and his colleagues are in a very precarious position. If
the slash and burn approach fails to stimulate economic recovery as promised,
they will pay a very high price indeed. Should things go as badly as they are
likely to, the prospect of the coalition breaking up sooner rather than later
should not be discounted. The Lib Dems have signed up to a programme of cuts on
a scale not seen since the Second World War. 25% is to be slashed from all
departmental budgets during this parliament. Child benefit is to be frozen and
housing benefit will be cut. Despite their pre-election exposure and
denunciation of the Tories’ plan to increase VAT to 20%, the Lib Dems are now
supporting the measure. Apparently also dropped since they joined the coalition
is their opposition to the renewal of Trident, the ongoing cost of which could amount to between £75bn and
£90bn over the next twenty years. According to an unpublished Treasury
assessment of the impact of spending cuts on public and private sector
employment, 1.3 million jobs will be lost by 2015. In a separate study the
Institute for Fiscal Studies calculates that the poorest families in Britain
will face cuts of up to 21.7% of their household income. Contrary to the
government’s claims that the burden will be spread fairly throughout society,
the poor will be hit six times harder than the very rich. But these cuts, we
are told by the deficit hawks, are unavoidable.
The voices raised against this fiscal orthodoxy are few, but
they are very persuasive, and it seems almost certain that they will be proved
right. Unfortunately, the very few informed left-wing economists do not get a
look-in in the mainstream media. In the U.S. those writing from a Marxian
perspective, such as John Bellamy-Foster and Fred Magdoff of the New York based
journal ‘Monthly Review’, see the present crisis as endemic to the system they
describe as ‘finance monopoly capitalism’. They set the recurrent recessions of
the past thirty years in the context of what they describe as the deepening
long-term stagnation of the ‘real’ economy. The overblown financial sector is,
they say, inherently unstable and destined to lurch from ever bigger bubbles to
ever more catastrophic busts. The system, they say, is unsustainable and the
only real hope for the future lies in replacing it lock stock and barrel with
one controlled by those who produce society’s wealth and based on a rational
calculation of human needs.
Others, who do not share their analysis, operate on the
assumption that as there is, in their view, no possibility of a viable
alternative to contemporary capitalism, it has to be made to work for the
common good. Some are more optimistic than others. They are mostly sympathetic
to Keynesian deficit financing as a way out of the current crisis. One of the
leading exponents of this viewpoint in the United States is James Galbraith of
the University of Austin, Texas. He believes that the danger posed by the
deficit is zero. ‘The idea’, he says ‘that funding difficulties are driven by
deficits is an argument backed by a very powerful metaphor, but not by much in
the way of fact, theory or current experience.’
Others such as Joseph Stiglitz and Paul Krugman have argued
that this is not the time to be slashing spending and that to do so runs the
serious risk of producing a double-dip recession. Krugman thinks that we are
now in the early stages of another depression, made virtually certain by the
proponents of orthodoxy, who, he says, ‘seem to be getting their talking points
from the collected speeches of Herbert Hoover.’ ‘And who’, he asks, ‘will pay
the price for this triumph of orthodoxy? Tens of millions of unemployed
workers, many of whom will go jobless for years, and some of whom will never
find work.’
David Blanchflower, Professor of Economics at Dartmouth
College, New Hampshire is convinced that ‘as a result of this reckless Budget
the UK will suffer a double-dip recession or worse, not least because there is
no room for interest rate cuts, although lots of additional quantitative easing
from the Bank of England could soften the blow.’
The liberal Keynesian Will Hutton is equally scathing about
what he describes as the ‘shock-and-awe British budget’. Hutton was one of the
few mainstream political commentators to foresee the financial crisis before it
broke. He sees the austerity measures to eliminate the deficit as in part
motivated by Tory fears that the banking crisis may not be over and that ‘the
British state may have to put its balance sheet behind our gargantuan banks for
a second time’. In this case, he argues, ‘the national debt needs to be
shrinking as a share of GDP if the UK is to sell the hundreds of billions of
pounds of debt necessary to prop up the banks.’ How does he regard this
alarming prospect? The coalition would not dare to admit publicly that this is
what it is doing. ‘Imposing austerity to save bankers and their bonuses in the
future is even less attractive politically than doing it to rescue them from
their past sins.’
What conclusions may be drawn from all this? At the moment
public awareness of the coming age of harsh austerity is still muted. This can
hardly remain so for long. Millions of the most vulnerable people will face
unimaginable hardship. Unemployment will rise above three million. The
coalition government will come under increasing strain and, if the Liberal
Democrat rank and file rebel, may not survive. There could be a political
crisis within the next two years. If this occurs it is likely to be in
circumstances of growing public anger which could, and should, manifest itself in
increased trade union militancy. Public sector unions are already mobilizing
for the fight-back. Every effort will be made by the government and its media
supporters to sow confusion and division amongst the public. Attempts are
likely to be made to use the law against the unions and striking workers.
There is little reason as yet to expect any leadership from
the Labour Party. None of the candidates for the leadership shows any real sign
of abandoning the disastrous record of New Labour and beginning the task of
rebuilding the party as a progressive force capable of providing the leadership
that will be necessary if the long, hard fight-back is to be successful. But,
wherever the leadership may come from, it is essential that a mass movement of
opposition is built. There is no time to waste.