By John S Warren
In his Budget speech the Chancellor described Britain as “the comeback country”; a quite remarkable assertion of triumphalism following a much longer, far slower economic recovery in Britain not only than in any of its recent history, but even than the Great Depression in the 1930s. This is an unprecedented record of failure to produce recovery in good order. Only in the Conservative Party would this result count as success.
Incidentally, George Osborne has proved to be as wretched a historian as he is an economist. The Scots did not participate at Agincourt; and had they been there, they would not have been “renegades”; but they would have been representing ‘king [James I] and country’ (as they did in thousands after Agincourt), defending France from unwarranted invasion by a tin-pot vassal, bringing tyranny and oppression. Ironically, at this time any ‘renegade’ Scots would have been with Henry V. Like so much in this Budget, the over-inflated, vacuous, politicised, vulgar Osborne rhetoric is contradicted by the facts.
So let us examine the Chancellor’s record of foresight, of judgement about what the real issues are, and the nature of his desultory claims to economic wisdom. Three special reminders of the Osborne ‘judgement’ will be provided in this article below. It is not reassuring.
Reminder One: In a speech at the Corporation of London on 21st June, 2005, George Osborne said this:
Here in the City of London we have a shining example of Conservative-led change. It is globally competitive, a powerhouse of innovation and ideas. The City’s Big Bang in the 1980s made a bonfire of regulation and restrictive practices, brought in international competition, and allowed the markets to benefit from the whole mixture through new trading technologies. That’s why London retains its leadership as the home of the most diverse and most successful capital markets in the world.
A shining example of Conservative-led change; it is good to know whom we should thank for the Credit Crunch: the ideology of Conservatism. Osborne’s “bonfire of regulation” lit the fuse to the greater bonfire of our whole financial system in 2007, and when the febrile regulatory witch-hunting activity was combined with the products from this powerhouse of “innovation and ideas”; it produced the vile cesspit of toxic financial instruments and lethal methods that has led us over the edge into the utter ruin of our national finances, the destruction of our economic stability, and the end of many ordinary people’s hopes and aspirations.
In the United States, Johnson and Kwak have exposed the fallacy of this bankrupt ideology that bailed-out the banks, which exacted no real penalties, but rather rewarded the perpetrators for their recklessness and unparalleled greed; and ended the farcical process of bank rehabilitation with even more gargantuan banks and the prospect of more dangerous banking than we had discovered in the Credit Crunch. We are actually going backwards.
Johnson and Kwak provide us with a reminder of one of the fatal misjudgements:
The conventional wisdom, shaped during three decades of deregulation, innovation, and risk-taking that brought us to the recent financial crisis, is that large, sophisticated banks are a critical pillar of economic prosperity.” (’13 Bankers: The Wall Street Takeover and the Next Financial Meltdown’. 2010: Ch.7, p.221)
For Johnson and Kwak, the conventional wisdom was entrenched in Washington, but they stiffen our resolve that this ideology must be challenged and resisted. They continue;
The megabanks used political power to obtain their license to gamble with other people’s money; taking that license away requires confronting that power head-on. It requires a decision that the economic and political power of the new financial oligarchy is dangerous both to economic prosperity and to the democracy that is supposed to ensure that government policies serve the greater good of society” (’13 Bankers’. 2010: Ch.7, p.221).
The same exploded ideology nevertheless remains largely uncontested in the intellectually unchallenging wastelands of Westminster’s mind-rotting culture; where George Osborne is nothing more than the small creature of the new financial oligarchy and the City. Regulation remains weak, but there are limits to the power of any regulation to resist the more dangerous speculative activities of the banks. As even Mervyn King eventually noticed: “The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.” (Lecture to Scottish businesses, Edinburgh: October 20th, 2009).
George Osborne nevertheless might have tried to introduce and enforce tough banking regulation, because even given its limitations, regulation remains a valuable tool in the risk-uncertainty management toolbox: but he didn’t.
Meanwhile, beyond the limits of regulation, nothing whatsoever has been done to dismantle the excessive scale or the risks (to everyone else) carried by the megabanks. Such shrewd commentators as John Kay have recommended reducing the activities of banks to narrowly focused, boring, but non-speculative quasi-utilities (sadly, so bereft is our current system of basic utility regulation that this concept probably no longer provides a usable standard; we have lost the culture, the will and the judgement even to regulate utilities); or Laurence Kotlikoff has proposed placing bank ‘risky assets’ exclusively in mutual funds; but again this great beacon of our financial sector, the noble mutual fund tradition in banking, investment, mortgage-business, insurance or pensions no longer exists on a significant scale in Britain. It was blown away with everything else that savoured of ‘standards’, of public service, of genuine diversity, or of ‘the greater good’ in the 1980s. In Britain we have utterly destroyed our better selves: all in the name of ‘free markets’ that we now may reasonably doubt are free; and the authorities have recently been required to investigate (e.g., LIBOR, ForEx), lest we find they have been rigged to our common detriment all along.
The financial sector as operated in the City now openly disdains diversity for scale, equity for leverage, competition for political power; and operates a louche culture that is somewhere between a casino and an offshore tax haven. The City takes the profits; but the taxpayer carries all the risks. This is ‘free enterprise’ today; risk-free but entirely at the public expense, which patiently takes both the ‘hit’, and all the political flak from the tax-free profiteers. This is Osborne’s real legacy.
Nevertheless, in George Osborne’s venal, decayed, hubris-fuelled world “London is the global capital of the world” (Budget speech, 2015). I have no idea what this crackpot statement means; but it is probably completely meaningless.
We can say, however, that far from London being the source of most of the the economic calamities that have struck Britain within or without Government, and having drained every drop of our resources (much of it completely wasted); the City having utterly failed us – a fact that cannot be challenged; within five years of entering office, and with no good reason at all, George Osborne makes the overblown, absurd and frivolous claim, “we will build on London’s success”. Success? Crash? Credit Crunch? Nothing to do with London! Osborne wants you to think this “success” for London will only be achieved by helping the “North”! But while the logic of this claim is deeply elusive, we can follow the money; and here is where almost all the resources will really go:
Today we confirm: new investment in transport [in London]; regeneration from Brent Cross to Croydon; new powers for the Mayor over skills and planning; and new funding for the London Land Commission to help address the acute housing shortage in the capital.” (Budget Speech, 2015)
This is what Osborne means by not building the North up by ‘pulling London down’. London always comes first, last and everything in between; and always will. Let us all build up the London property bubble yet further; it is the Conservative solution to all economic problems since WWII. Boom-and-Bust is the Conservative way.
The British National Debt has doubled since Osborne entered 11, Downing Street. In 2008-9, the year before he became Chancellor, the National Debt (ONS statistics) was £724Bn (49% of GDP). In 2014-15, under his stewardship it is estimated to be £1,479Bn (almost £1.5 Trillion; 80% of GDP); but the National Debt is not forecast to peak until 2019-20, at a little over £1.6Tn; or using current Government forecasting reliability, it is quite probably increasing endlessly: who can tell?
The hero of austerity, George Osborne has cost Britain well over £700Bn in five years; now that is a peace-time record – but what on earth has this to do with austerity? Nothing: but this, he would like us to believe, is a triumph for a Government which believes above all in reducing both deficit and debt. It would have taken Osborne much, much longer to double the debt if he had just sat down, and spent the whole five years simply burning banknotes; and we would have been spared his famously infamous bungled 2012 Budget (“probably the most bungled budget in history”: Polly Toynbee, Guardian; April 16th, 2012), or his flip-flop reversals of policy on North Sea Oil; which he now celebrates as a triumph of his legendary absent-foresight. Oh, and rest assured I have not finished exploring his legendary absent-foresight.
More importantly, having failed badly against any measure of debt/deficit success (as defined by the Conservatives themselves) we might expect that the Chancellor would be prophecying doom and disaster at the scale of Britain’s current debt failure; but no, in Osborne’s world this turns out to be, well, a Conservative triumph.
This should lead us perhaps to doubt either the Conservative’s basic understanding of economics, or the plausibility of Conservative harbingers of debt-deficit doom; but no, that won’t work either; because we are in a special Conservative fantasy world, where anything can mean anything at all – just make it up; provided only Conservative economic ideology prevails. None of this is attached, at any point, anywhere, to the real world; which should come as a relief, but no surprise to the rest of us.
In fact while the debt and deficit are important, they are quite obviously a great deal less worrying than Conservatives claim; after all the Government is now painting a forecast £1.6Tn National Debt as a triumph, that they would have proclaimed as the Apocalypse itself, had it been presented to us in a Budget by a Labour government after five years in office. And the roof hasn’t fallen in. The walls stand.
The Conservatives having failed to tackle the Debt, according to their own standards of necessity in 2010 as the self-appointed champions of austerity; now present what was for them unacceptable levels of National Debt, as a great triumph for Conservative austerity. This simply will not do. Clearly, something is wrong with their analysis, because patently, anything goes; anything can mean anything; black is white, right is wrong; failure is success.
We are deep in the world of ‘Newspeak’. Under all this crude bluff and meaningless rhetoric a starker truth is struggling to come out; the Conservatives oversold both the scale of the austerity problem, and the best way out of the debt problem for Britain. The problem the Conservatives claimed was unmanageable, and that they have clealry failed to manage through the application of austerity, turns out to be manageable anyway. Nothing changes. This is the reality of Osborne’s argument: and the moral is?
Austerity never was the solution to the debt problem.
Britain has been near-bust (or actually bust) for most of the last century. The difference between then and now is that two World Wars destroyed our (already over-extended) finances after 2014. In the 21st century however, unaided and for reasons only known to piratical Conservative and New Labour ideologues, we finally managed to destroy our financial system and ruin the national finances all on our own; a joint-venture of utter folly by Conservative (1979-1997) and New Labour (1997-2007) Governments. These are the facts.
In Osborne’s fantasy-land it is a triumph that after five years of his ‘management’ the deficit is a little lower; but not much lower, only a little lower; in fact the movement is marginal. The Deficit is not now forecast to be eliminated until 2018-19: believe that forecast if you like; on past performance his forecast is worthless.
In 2010 Osborne had forecast the Deficit’s complete elimination within one Parliament. He couldn’t do it, and the proof of his flawed case is that he gave up trying. But the deficit ‘reduced’ is simply an extremely convoluted way of Osborne indirectly telling the British people that the National Debt is still going up; and up, and up, and relentlessly up.
Osborne now forecasts the National Debt will stop going up at the far end of the next Parliament; but of course he hasn’t hit a single forecast on deficit or debt since his government came to power – so we can simply dismiss this low-probability, risible proposition out-of-hand. He only rescued the deficit from spiralling upwards by putting ‘austerity’ on hold (save for some gratuitously selective and targeted spite). Yet elimination of the deficit and stopping the increase in the National Debt mounting ever higher is precisely what Osborne and the Conservatives tell us they are “for”; it is what they are good at: in which case – oh, dear; assume the brace position.
What Osborne says and what the Government does are not (of course) actually the same thing; after all, this is Conservatism. The austerity policy remains, but large chunks of the ‘cuts’ we suddenly found (from around 2013), are being pushed ever further into an undiscussed future. The Government slashed and burned for three years; found that austerity didn’t actually work, continued to talk austerity, cutting judiciously only where there were easy, soft targets offering maximum political-rhetorical return from the righteous Conservative ideologues, and where the victims were politically too weak to fight back; while slackening the austerity pressure wherever they thought nobody would (wish to) notice, in order to rescue the wreckage of their economic mismanagement.
Now we are supposed to return them to office in May, in order that they may return to the next three years of slash-and-burn, safe from an election for five years. Of course, the policy will not work, but this is ideology, and it will serve the City small-state-nil-tax-paying ideologues for three good years of comfortingly brutal austerity applied to someone, anyone else; then the Conservatives will run up to the 2020 general election, by attempting to cover their disastrous tracks through a mixture of PR disinformation and tax giveaways; unless of course, the next Crash has not already struck us, and them, down.
What is the evidence for a stealthy Osborne desertion of austerity? Oscar Jorda (San Francisco Fed) and Alan Taylor (University of California) have used a new statistical method applied to local empirical data (distinct from VAR/SVAR) to examine economies where there is evidence of shocks to fiscal policy; their analysis, published in September, 2013 using Local Projections/Inverse-Probability-Weighted Regression Adjustment (LP-IPWRA), was a focused assessment of Britain’s austerity fiscal policy. The analysis decisively showed that since 2010, austerity in Britain had damaged growth.
In the predicament where interest rates set by the Bank of England are already rock-bottom and cannot be used to offset fiscal tightening, fiscal policy itself becomes even more critical; the Jorda-Taylor analysis showed that austerity in a downturn is contractionary, and it hurts growth; badly.
In short, the policy directive to be drawn from the Jorda-Taylor research was conclusive; only operate austerity in a boom, not a slump (this is Keynesianism, but it falls naturally out of the analysis; rather than a-priori Osbornianism – the pre-loaded ideological assumption that ignores any inconvenient reality).
We need not rely exclusively on the novel analysis of Jorda and Taylor. It seems to have dawned on the Government itself around 2012/13 that their austerity policy was a dud; they just didn’t tell anyone. They furtively changed tack. Jonathan Portes quotes Robert Chote (OBR) in 2013, writing that in spite of Osborne’s less than rigorous protestations, “deficit reduction appears to have stalled”. Portes in turn argued that most of the Government’s net public investment cuts actually stopped as early as 2012:
because the government belatedly realised that cutting investment was a major mistake and that the economic imperative was actually to do precisely the opposite (not that there was much investment left to cut); and it stopped putting up taxes overall. So we can see also what’s happened since – with the impact of the weak economy on tax receipts reducing revenues, the deficit has been flat and is projected to stay flat.” (New Statesman, 10th September, 2013)
The weight of economic opinion that has noticed the lacunae between Government rhetoric and reality on austerity (at best an obvious subterfuge) is overwhelming. Mark Blyth, another acute US-based academic economist, has noted that net Government consumption in the UK fell 0.1% in 2011; but actually increased +2.6% in 2012.
“This boost to consumption, right where it matters in terms of consumptive bang-for-the-pound effectively put austerity ‘on-hold’ in the UK”.
The rhetoric of austerity continued …. and the reality of budget cuts on social services, one-third of which targets disabled workers, continued” (‘Austerity: the history of a dangerous idea’: 2015; Postscript 2014, p.253).
Why insist on a culture of austerity when the Conservatives know that it does not work in government? There are three basic reasons. First, it is not a good idea to admit that everything you believe in is actually, and brutally obviously, wrong. Second, Conservatives are eager to claim the appearance of a kind of virtuous, puritan rectitude, however implausible or unconvincing that may be as an image of Cameron, Osborne or Boris Johnson; but at least to appear as more austere, more self-denying in the righteous cause of ‘austerity’ than their political opponents; hence the ridiculous mileage that was immediately wrung out of how many kitchens a political leader may possess.
Third, and most important, ‘austerity’ is a Conservative moral imperative, a loftily detached guide for the masses; the rhetoric is thus an orchestrated, quasi-pavlovian exercise in guiding public opinion and behaviour to reinforce a kind of blanket, soporific, mass docility that chimes with a world of zero-hour contracts, benefit cuts and a small-state.
Fear of poverty is the best (only?) inducement Conservatism can ever think of, to ensure the provision of a reliable cheap-labour market, feeding in to a low-interest rate, savings-averse, consumer-driven, tax-avoidance dependent, London-focused, cynically exploitative, rip-off, ‘market’ (so-called) economy with nugatory regulation; welcome to the perfect political framework for an oligarchy.
Blyth gathers the threads of all the Osborne contradictions together, to summarise Conservative economic sleight-of-hand, thrown together with a ragbag of the old consumption-boosting favourites; the antiquated, long discredited, short-termist, boom-bust mechanisms of Conservatism for producing the appearance of economic dynamism in half the country that always ends the same old way, and that we all know so well:
[A] fall in savings, plus the UK’s government decision to put the financial sector back together again with bigger airbags, combined with the ease-off on austerity to pump up a new housing bubble, centred once again in London. In other words, its the same old growth model put back together again…. …. ”. (‘Austerity’: p.253-4)
Of course none of this will surprise anyone, because George Osborne has no foresight; and it seems no memory either.
Reminder Two: on 12th July, 2005 in a speech to the Centre for Policy Studies, Osborne attacked the then Chancellor, criticising Gordon Brown for, of all things, “excessive regulation”: of
“spending too much, wasting too much, taxing too much, regulating too much and interfering and meddling too much. These are exactly the opposite of what Britain needs to do to compete in the modern world.”
What we needed in 2005, according to the wisdom of Osborne, is thus ’the opposite of regulation’. What we needed, it seems, was no interference in the finance sector; and we may therefore deduce, what Britain really needed was just a whole lot more irresponsibility, recklessness and unvarnished greed. For Osborne our economic stability was not at risk, the unregulated banks were not out of control and on the verge of destroying the whole financial system, or of sending the economy into an unstoppable spiral of deep recession from which it has never fully recovered; the problem was rather, “interference”. Well, we can rest easy; George Osborne will not interfere, except to slash-and-burn public spending.
George Osborne is an ideologue, and in his febrile imagination the financial sector is not a risk, but rather “stability is at risk because of the Chancellor’s [Gordon Brown] excessive spending”. The conventional wisdom of a one-eyed Conservative Party that is blind to its own folly, is therefore that Britain’s problems are all simply the consequence of Government over-spending: a simple problem that allows simple-minded Conservatives to offer a simple solution: austerity.
And so it came to pass: stumbling into office the Conservatives decided the real problem was not a catastrophic failure of the private sector and the irresponsible, feckless excesses of an only too free-enterprise banking industry, and a business culture increasingly marked in Britain by industrial-scale misselling, rip-offs, the rise of usury (cynically aimed at the poor), and the abdication of regulation, to say nothing of the abdication of common sense, or even basic decency; but all the ills were down to government spending: and what was needed to cure that monster was austerity.
Reminder Three: just before the Crash, George Osborne, with typically impeccable, misfiring timing, heaped praise on Ireland as a “shining example” – for Britain!:
“Ireland stands as a shining example of the art of the possible in economic policy-making … Ireland has shown the world that wise economic policy-making can produce outstanding results that surpass all expectations, so that we can meet our potential, achieve our goals, and share rising prosperity in an increasingly competitive world.” (speech in University College, Dublin; February, 2006).
He was still promoting the same example of Ireland for reforming its economy, making itself competitive, and strengthening its public finances – in 2008 (speech in LSE; January 11th, 2008).
The distinguished financial commentator Martin Wolfe eloquently expressed what is really in store for us in Britain. Presciently he wrote,
What is emerging is a slightly better capitalised financial sector, but one even more concentrated and benefitting from explicit state guarantees. This is not progress: it has to mean still more and bigger crises in the years ahead.” (Financial Times, 29th September, 2009)
Wolfe’s foresight then remains intact today; after all, George Osborne was Chancellor in the intervening period. Johnson and Kwak in the United States meanwhile argued that:
there is no reason to believe that bankers will refrain from inventing new toxic products and precipitating a new crisis in the future. What’s more, given the growth in the size of the leading banks, the next crisis is likely to be even bigger.” (’13 Bankers’. 2010: Ch.7, p.193)
The detachment from reality that Osborne’s politics represents stems from the systemic inability of Conservative (and a few Labour) ideologues to face squarely the fallacies of their failed ideology; and the gross blunder that is the policy of austerity. The problem Britain faced in the Credit Crunch was a private-sector banking meltdown which could only be stabilised by drastic state intervention. This is undeniable; but the Conservatives deny it anyway.
The fact that our regulatory regime was also inadequate simply reminds us of the very low general level of competence we are obliged to rely on in Westminster; but it does not turn a catastrophic failure of free-enterprise market economics into a problem of public sector spending. And yet, even now the Labour Party will not desert the rhetoric, or the ideology of austerity that they have borrowed from the Conservatives; their ideological partners.