by Alex Porter
With recent polls revealing that people in Britain believe austerity will make the economy worse the question of why the policy has been adopted becomes salient.
This is especially so in the case of Scotland where the national accounts (GERS) show a surplus.
The Scottish electorate has shown in the recent Scottish Social Attitudes Survey 2010 that it would like the Scottish parliament to assume more powers, including full control over taxes (57%) and benefit payments (62%). With economic independence there would be no need for such swingeing cuts and so Scots might wonder why they must face austerity at all when Scotland already subsidises the rest of the UK.
If, as the electorate believes, austerity will exacerbate the UK’s economic soveriegn debt, financial and currency crises then concern in Scotland will not be limited to asking why Scots should bail out England. The greater question is what damage an economic medicine prescribed for south of the border might do to the Scottish economy.
The logic of austerity is that government deficits created by the last UK Labour government will be brought under control through cutting public services and welfare benefits. The problem with this prognosis though, is that if you cut benefits there’s less money spent in the shops meaning less VAT revenue for government and at the same time retail sector jobs are lost adding to the burden placed on the benefits’ system.
By cutting public services people will have to rely on private service providers instead, meaning less expendible income causing less consumer goods to be bought and so consumption takes a battering again. The huge cuts in public sector employment targeted by the ConDem government will see salaries taken out of the main street economy but it will also trigger mortgage payment defaults and less demand for home-ownership which in turn will lead to further declines in house prices.
Evidence from around the world is that austerity makes the economy worse. Argentinians were told this economic medicine would help and their economy imploded.
UK Austerity Gulag
How did we get to the stage where austerity is being rolled out in defiance of public opinion? Whose interests does austerity really serve? Meaningful questions for the people who will be affected most by the cuts in public services – the poor, the low paid, the students and the heavily indebted home-owning working class.
When governments run into debt they borrow from banks. Private banks can borrow from the Bank of England, currently almost free of charge (quantative easing) and then they can multiply that money (leverage), legally creating new money and lend it out at interest. Governments can therefore borrow from banks (with a promise to repay with interest = bonds) which create that new money at the flick of a switch.
The reason banks got into trouble was precisely because they can create this new money. They created it and they gambled it and they lost it. When they lost it all they had to pay it back. They couldn’t as it was hundreds of trillions of dollars. It will never be repaid. They multiplied the money they borrowed dozens and sometimes hundreds of times over and lent it out creating an irrational and distorted economy.
When that bubble economy crashed the debts were enormous and the banks should, under the core principles and rules of capitalism, have been liquidated as they were, and still are, insolvent. The banks’ owners lost their money which they should never have invested. Had they followed the usual business practise of due diligence – checking their investments were soundly managed – they wouldn’t have.
Oops, did I say the banks’ owners lost their money? My apologies, they didn’t. You, the taxpayer bailed them out. Private losses were transferred to the public. This is an enormous confidence trick but political parties, economic commentators and the media played along. Why? Let’s not get into the theological aspects of modern ‘neo-classical’ economics – it’s nearly Christmas for heaven’s sakes.
Why is there a crisis in Britain’s public finances? You paid those private debts – why? If someone burgled your house would you track them down and voluntarily offer them your life-savings as well? This was and is criminal fraud across the entire financial sector. Yet you said and did nothing. For your generosity you now get the bankers’ one-two; austerity. Yes, the government is heavily in debt because you went along with bailing out wealthy investors. So, how do they propose to control these debts? The answer is you pay twice.
The trick in understanding ‘why’ is in identifying the piper that has to be paid – banks. Follow the money. The government is so dependent on banks now that the banks call the shots. In short, they now run government economic policy. Much the same way as the IMF runs economic policies when they give ‘assistance’ to bankrupt and desperate countries.
As the financial sector is still insolvent and heading into another solvency crisis – quantative easing (welfare benefits for the supremely wealthy) is running out – they know that they will not get credit from other banks. The media and politicians focus on credit rating agencies in order to assess a bank’s credit worthiness but the reality is that what matters to banks is how other banks rate them. When the next financial crisis hits who’s going to bail them out? Not other banks but YOU, AGAIN. You got the jab, the cross hook and now you get the upper-cut. They need the government’s credit rating which is derived from your endless ability to work and pay taxes. Oh, and your unborn grandchildren’s too.
As the political wing of the banking sector, the government has to scale down its debt through austerity and reduce government taxes on big business – bank customers – and of course tax finance less. That all makes sense to the bankers.
To leave as much cash around as possible for the next round of bailouts they have to deprive you of more money. The banks see themselves as the real economy. How can this be? They are extractive not productive. The brutal truth is that they don’t actually care for anyone but themselves.
High finance thinks that lowering wages will help for a start. If austerity leads to depression it will lower wages by maybe twenty percent and government/banks believe that that will make the economy more competitive. They think that this ‘competitiveness’ will cause employers and banks to make more profits/bonuses/dividends. To enrich the corporate world they must impoverish the real economy. This is the thinking that caused Britain’s industrial economy to decline and its empire collapse.
The real economy, production and consumption, gets floored because bankers and their middle management administrators (Brown/Cameron/Clegg) believe that it is the extractive part of the economy, finance, which is the driver. The belief is that a depression will help the financial sector survive its crisis. It won’t.
To pass the burdon on to the taxpayer you have a heady mix of strategies: Consumer debt, tick. Lower wages, tick. Increased VAT, tick. Benefit cuts, tick. Public service cuts, tick. Tighter regulation on banking, cross. Increased taxation on financial transactions, cross. Increased capital gains tax, cross.
Why are all the crosses against the ones who caused the crisis? Why are all the ticks against the ones who didn’t?
Corporate logic is that there are two corrosive costs to business. Firstly, the cost of labour and producing goods. Secondly, tax. They want to shift the tax burden from finance and to some extent industry entirely on to labour. It’s bad economics but received wisdom in business circles. Employees are not assets, they are liabilities.
This whole process releases finance from having to contribute to the treasury whilst they splash out using their gCard – their flexible friend, the government’s credit facility (quantative easing) to bail themselves out all over again.
PricewaterhouseCoopers has forcast that the UK’s debt will be £10.2 trillion by 2015. Debts which can’t be paid won’t be paid and key players in the UK’s financial sector realise this – they’re a lot smarter than the UK’s captured and clueless political class. Quantative easing (money printing) and bailout money is going to bondholders and shareholders who are now investing abroad. You bail them out and they bail. The game is up and they’re printing money, extracting what’s left of the population’s wealth, and converting the UK’s creaky old once-nearly-democracy into a debt gulag. That’s the exit strategy of the big finance houses. The money has largely gone already.
If you thought austerity was madness, now you know you were wrong – it’s a systemic wealth transfer undertaken by people who are legally of sound mind.
By printing more money and reinflating the bubble economy house prices will be maintained a while longer while at the same time wages fall meaning more debt will be sought in order for people to house themselves. By indebting people further the consumer economy falls off a cliff. Does the real economy matter to them? Sorry if you thought the people in charge were ethical and motivated by the wider public interest. These people will shoe-horn you into PFI schools, turn you against each other using tabloid propaganda and send you to war in Afghanistan before you can say the word ’emigrate’.
The question which arisis out of all this is, if the peope think austerity will make things worse why don’t they do something about it? Well, this is where high finance gets smart. If you miss a credit card payment your interest rates go up, you get bank fees for missing mortgage payments and refinancing, you lose your house if you miss payments. These are the punative measures which keep people obedient. If you go on strike, complain about working conditions and get sacked you’re closer to being homelessness than you’ve ever been in recent history. The economic and social gains made by society since the war are being rolled back.
Debt has driven down wages despite productivity rises in recent decades. The benefits of these productivity advances have been extracted by the financial sector (which makes nothing). Growth has been siphoned off. All surplus goes on banker bonuses and much of the population has just less than enough money to pay for the basics of life and so are effectively in indentured servitude to a new neo-feudal class.
Having sucked the UK dry the parasite will be off to the next host. This time in the developing economies such as Brazil, Russia, India, China and so on. Britons face being shackled with generations of debt – no longer of any value to international capital. London City financiers? They who Gordon Brown lionised in his 2007 Mansion House speech?
“So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”
Where will these financial oligarchs be in five years? They’ll be living in the manner they’ve become accustomed to in Shanghai, Beijing and Taipei.
This is why Scotland is paying for austerity despite its surplus. This is why all discussion of economic independence is suppressed and resisted. This is why the BBC is so obviously anti-independence. Using the oil money to invest in the establishment of a decent national economy simply gets in the way of the next bankers’ bailout fest.
If you want to know where the money and improving standards of living are, look to where the currencies are strongest. Countries which do not transfer private debts to the public have real governments which behave responsibly. If you want to know where generations will be sufficated by debt look to which currencies are quickly being debased to feed the financial sector – pound, dollar, euro.
Now is the time to discuss whether Scotland should remain manicled to the pound or move towards a more stable currency of its own. Sterling has been devalued by 20 percent against its key trading partners yet its economy has not benefited at all. By contrast German unemployment is at an all time low despite a relative rise in the value of the euro. Who then is benefiting from devaluation? Devaluation reduces the purchasing power of your money. It’s a pay cut and again hits consumption and contracts the real economy.
Much is at stake then in the forthcoming Holyrood elections. Scots must consider the Calman Commission proposals aka the Scotland Bill – a Westminster piece of legislation. It has been slated by world-class economists and business leaders as ‘dangerously flawed’ and ‘unworkable’. The Scottish parliament’s Scotland Bill Committee is chaired by Wendy Alexander who as leader of Holyrood’s Labour party oppostion group resigned in 2008 due to accusations over an illegal donation. Continued accusations leave that wound open.
Further questions over the probity of the whole Calman process are raised by the appointment of Jim Gallagher. Gallagher, a civil servant, was appointed by Gordon Brown to oversee devolution and is known to be hostile to increasing the Scottish parliament’s financial powers. Last month Gallagher penned an article for The Telegraph with the title: “Why the Scotland Bill is good news for England“. An independent advisor? You decide.
The case for a national debate on economic independence must be persevered with between now and the Holyrood elections in May. The opinion polls show Scots are enthusiastic about this policy. Perhaps this enthusiasm is more a survival instinct. It should be carefully nurtured. The Scotland Bill is an exercise in heading off momentum for economic independence. It is designed for Westminster to keep control over Scottish affairs. Ultimately it is about extracting Scotland’s surplus and more to pay for the next round of financial sector bailouts.
Already, Scottish universities fear for their future funding because of the UK government’s austerity policies. With economic independence, they needn’t. Austerity measures are causing real pervasive fears in Scotland because the consequences are so hugely uncertain. Such volatility and uncertainty means Scottish businesses and institutions must budget for the worst case scenario. With economic independence they needn’t.
If Scotland is to avoid austerity and generations of debt it must reject the Scotland Bill, as it stands, outright. While the unionist media machine ignores those calling for a debate on economic independence – such as Scotland’s prestigious Council of Economic Advisors – commentators and activists in civil society must struggle to keep this inspiring ambition alive at the top of the Holyrood election agenda.
The decision facing Scotland is one of epic proportions. Every Scot must ask themselves, as the elections to the Scottish parliament draw near is, the question: do I want myself and my nation to live in a state of neo-feudal debt peonage or do I want economic independence? That, for all it sounds theatrical, is the true moment of destiny – individual and national – awaiting inside Scotland’s polling booths on 5 May next year.
Read previous essays written by Alex Porter for Newsnet Scotland: