There is something about a general election campaign that shoehorns reality into fantastical contortions. Actually, scrub that, there is something about a general election campaign that invents reality so that the resultant limpet-like myths bear absolutely no relation to actual events.
So it is with the economic story of the last few years.
As predicted in this blog, the myth of Labour over-spending as a cause of the economic crisis has come to dominate the popular narrative of the crash and its aftermath. Bringing to mind Bertrand Russell’s observation about the stupid being cocksure, while the intelligent remain beset with doubt, its giant wrongness only seems to invigorate the resolution of those clinging to it.
It is probably futile to point out (as the graph below shows) that the last Labour government spent, as a proportion of the GDP, less than Margaret Thatcher did. Labour also taxed the rich and corporations much less than Thatcher as well, although she established the direction of travel. Which goes some way to explaining why government debts and deficits remain so predominant; a situation exacerbated by the current UK government cutting corporate income tax by nearly 30%.
The George Osborne retort that the last Labour government should have mended the roof while the sun shone is strangely never applied to the blessed Margaret. And there is no reason why not. Because things got decidedly overcast when the UK dipped into deep recession in late 1989. I blame debt racked up by Margaret Thatcher’s Conservative government (that way lies insanity. Ed)
The notion that Labour was drunk at the wheel of City regulation, while true, ignores one serious, endemic flaw of regulation in a capitalist economy. It is necessarily ineffective. Truly effective regulation, whether in finance or pharmaceuticals or food production, would suffocate profit and growth and so there is always a modus operandi reached with the industries that are supposed to be regulated. Even halfway decent regulation will produce lower growth and so government revenues will inevitably be smaller.
All this may look suspiciously like making excuses for the last Labour government. But that’s not what I want to do. Because, while the over-spending myth has come to cast a pall of stupidity over the general election campaign, an opposite myth has arisen. Admittedly, one that has far less traction. But it’s no less fictional.
This narrative is best called, the Gordon Brown Saved the World myth. While other world leaders were like rabbits frozen in headlights in 2008, Gordon Brown stepped in and advocated nationalisation of the banks. This together with other interventionist measures, the story goes, ensured that growth returned and economy was ‘on the mend’ before the Conservatives got elected in 2010 and choked off this resurgence with austerity.
There are numerous aspects to this story of events that are seriously wrong. Firstly, the kind of nationalisation employed by Brown, an arms-length, business as usual nationalisation, was entirely the wrong kind of nationalisation. Secondly, this nationalisation effectively transferred massive private sector debt to the public. Thus, if it did save the world from a great depression, it did so at the expense of giving a massive shot in the arm to austerity (which now could be portrayed as necessary to pay off the debts) and, by rescuing insolvent institutions, all but ensuring future economic stagnation.
One writer on the history of austerity, Mark Blyth, has confessed that, while in 2008 he thought there was no alternative to bail out the banks, he is now “no longer sure this was the right thing to do”. “Perhaps we should have let the banks fail,” he writes in his book, Austerity: The History of a Dangerous Idea. “Yes, systemic risk says otherwise. But if the alternative produces nothing but a decade or more of austerity, then we really need to rethink whether the costs of systemic risk going bad are any worse than the austerity we have already, and continue to put ourselves through.”
The notion that real growth had returned to the UK economy at the start of 2010 (in the first two quarters of 2010 the economy expanded by 0.5% and 1%) is risible. Growth was produced by bail outs and quantitative easing (QE), an entirely artificial way of stimulating the economy that works by raising the price of shares and property. Government intervention which, by the way, direct benefits the rich and property owners. And makes borrowing more attractive; which some might say is a strange thing to do in a credit-addicted economy.
And QE always produces a temporary effect, which fades away. The Eurozone economies are expected to grow more quickly that either the UK or US in the first quarter of 2015, following the introduction of QE late last year. The US economy, which ended six years of QE last October, grew by just 0.2% in the first quarter of 2015 and has yet, according to Reuters, “to demonstrate self-sustaining resilience.” In fact, we seem to be at the beginning of a global economic downturn, as the various stimulus measures undertaken in 2008 wear off. We used to have boom-bust, now we’ve got dribble-bust. The world hasn’t been saved, in case you were wondering.
“It is possible that the world economy is so damaged that it needs permanent QE just to keep the show on the road,” said the Daily Telegraph’s independent-minded international business editor last October.
None of this is meant to justify austerity, an entirely self-defeating policy that inflicts huge suffering on the people that didn’t cause the crisis in the first place. But Labour in 2010 was in favour of austerity and has in no way diverged from the QE/ultra-low interest rates/house price bubble route to economic ‘recovery’ undertaken by the Conservatives. Private debt is enormous and getting worse. The fact so many new jobs are self-employed or zero-hours is not just because the balance of power has swung so far in the employers’ favour, but because the economy is fundamentally weak.
It does no-one any good to pretend that what happened in 2008 was a bog-standard recession effectively countered by the nimbleness of politicians in power at the time. That just won’t wash, it was far deeper than that. There are ways in which the kind of government in power after May 7 will change things, from the way disabled people are treated to the circumstances faced by private renter; however marginal that may be. Make your choice with your eyes open. But the UK economy will remain deeply, structurally flawed. That’s a certainty.