Saturday, 10 September 2011

George Osborne's "rock of stability"

On 9 September 2011 George Osborne, the man in charge of the UK economy, made a speech at Chatham House in London alongside the newly appointed IMF boss Christine Lagarde in which he made some astonishingly facile statements about the UK economy. The most notable of which was his absurd description of his ideologically driven "austerity agenda" as the foundation of Britain's economic stability. Here it is in his own words:
"We will stick to the deficit reduction plan we have set out. It is the rock of stability on which our economy is built."
It saddens me that anybody could consider using such a glib and inane metaphor in a serious discussion about economics (we must assume he wasn't joking) but that such a misguided economic sentiment could be uttered by the Chancellor of the Exchequer is quite astonishing, although perhaps explained by the fact that he is not an economist, his degree is in History!

I don't have a degree in Economics either but I've worked out for myself that the foundation of economic stability is something a little more fundamental to the system than some ideologically driven government "austerity" scheme.

If he'd read it out this absurd conflation of a fluid political process and an economic foundation, nonchalantly or absent mindedly whilst delivering a long and poorly written speech that he'd only had time to skim read before delivering, we could perhaps forgive him. However this crass and senseless metaphor is actually one of Osborne's carefully selected and oft repeated economic soundbytes, part of the simplistic economic narrative he uses to explain the economy to us "thickwits" in the general population. It seems as if the Tories believe that their economic rhetoric doesn't even have to make any kind of sense, even at the most basic level, it just needs to contain the right balance of reassuring words and economic jargon in order to placate the masses.

How on earth could the Tories have considered using such an incoherent metaphor which relies on the fundamental confusion of processes and a foundations to "explain" their harebrained economic methodology? It's just idiotic.

As a former construction worker I tend to think of processes (like economic policies) as things that take place within structures, which in turn are built upon foundations, not as the foundations themselves. Foundations would tend to be fundamental things without which the rest of the edifice could not even exist. So if we are going to use simplistic metaphors to explain complex economic ideas perhaps we could say that productivity is the foundation of the economy, trade is the structure, and the economic establishment  are the construction workers. This leaves short term ideologically driven government fiscal policies like "Osborne's Austerity" as the builders' tools. In fact it would be fair to say that "Osbourne's deficit reduction plan is a sledgehammer" is a much better metaphor than the fantasy that his ideologically driven plan is some kind of bedrock of economic stability.

I've chosen to use productivity as the foundation of my economic metaphor because without economic production there would be nothing to trade. Human society would soon degenerate back towards the kind of seasonal hunter-gatherer society it originated from if nobody produced any goods or services.

To make a crude distinction, there are two kinds of productivity; private productivity and state productivity. The problem with Mr Osborne's simplistic worldview is that he believes the militant neoliberal economic dogma that state productivity is basically "waste" until it is commodified via privatisation. The Deficit Reduction Plan he describes as a "rock of stability" is actually a mechanism for selling off or simply shutting down state productivity, a sledgehammer that he is using to smash lumps off the economic foundation of productivity, undermining the wider UK economy.

Some people have such a simplistic anti-public sector mentality that they don't even seem to understand that the state services that are under attack are intricately linked with private sector productivity. Without a fit and healthy workforce productivity falls, without adequate policing, crime and soaring insurance costs undermine productivity and without hefty investment in scientific research and higher education, the high-tech industries of the future will look elsewhere to set up production.

Osborne's "slash and burn" austerity policy is riddled with false economies and is reliant on the Great Neoliberal Lie (that immediate deficit reduction is the first and overriding economic priority). It is absolutely no surprise at all that Osborne's economic policies won praise from Christine Lagarde, the head of the IMF.

Many commentators have picked up on lagarde's comments about the need for ministers to retain "flexibility" and used them to claim that she was somehow contradicting Osborne's monetary policies, however as a Chicago school trained economist and the leader of the most powerful neoliberal organisation in the world, it seems much more likely that she is asking Osborne to consider another round of massive financial sector bailouts and more conjouring cash out of thin air through quantitative easing, than asking him to keep an open mind about a return to a stable Keynesian style mixed economy.

Returning to Osborne's idea that his "cuts agenda" is some kind of defence against the collapse of the UK economy, perhaps we should consider that this statement came about because Osborne and the Tories know something that they are refusing to share with us "dimwits" in the general public. Perhaps this "missing information" is that the bankers that provide more than 50% of Tory party political donations have made it absolutely clear to George that they intend to have their overleveraged banks recapitalised by the state, and that ordinary working taxpayers are the ones that are going to have to pay for it, through wage freezes, slashed services and economic deflation.

It seems obvious that Osborne has been warned by the financial sector that they will inflict severe economic sanctions (downgraded credit ratings, refusal to lend to British businesses, vulture capitalism) on the UK government if they let up on the policy of bleeding the real economy dry in order to recapitalise their financial institutions. The fact that most of these "austerity" policies fit snugly with George Osborne's personal faith in militant neoliberal dogma means that there is effectively no chance that these policies will be halted, no matter the scale of the damage they inflict on the UK economy.

Dreadful economic growth, borrowing and unemployment figures for 2011 show that the UK economy is slipping back into recession, which would create a shrinking tax take and immediately eliminate many of Osborne's "austerity savings" through reduced government income. None of this matters though, if Osborne continues refusing to even admit that there is an alternative to militant neoliberal economic vandalism.

It is quite clear that there are alternative methods for reducing government borrowing; we only have to look back a few decades to what preceded neoliberalism. The post war consensus mixed economy created 28 consecutive years of budget surpluses (1948-1975), reduced the national debt from 247% of GDP down to just 43% and improved standards of living across the nation. In the subsequent 31 years of unbroken neoliberal economic policy, governments returned budget deficits in 17 of them and the wealth gap has increased faster than ever before. Since the Neoliberal Economic Crisis really kicked in, government debt (including bailouts) has risen from 36% of GDP (2007) to 150% of GDP (2011).

Another more recent example of a nation state breaking with IMF approved neoliberal heterodoxy in order to power their way out of recession can be seen in Argentina. As the neoliberal economic crisis in Argentina preceded the wider Global Neoliberal Economic Crisis, a comprehensive understanding of Argentine Recovery Economics should be a staple for any government intent on using whatever means possible to drag their nation out of recesion.

With "Osborne's austerity recession" on the doorstep and a new round of economically destructive Quantitative Easing looming, these frighteningly poor government debt figures only look set to worsen, yet virtually nobody in mainsteam politics or economics is prepared to admit that militant neoliberal dogma has been shown up as little more than dysfunctional and amoral economic alchemy, least of all our Chancellor Geogre Osborne.

 If you enjoyed reading this post, maybe you could buy me a beer? £1 would get me a can of cheap lager whilst £3 would get me a lovely pint of real ale.


George CA Talbot said...
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George CA Talbot said...

I don’t have an economics degree but have been interested in macroeconomics since 1957 when a lecturer claimed the economic cycle was shortening because government was increasing the loop gain! Then a prices policy maintained low inflation and an incomes policy maintained adequate demand. Exchange controls allowed governments to set exchange rates to balance current accounts. Banks kept around a third of their deposits as reserves of base money. And governments tried to damp the economic cycle and set monetary policy to allow the economy to grow without inflation. Later I learned about the proportional, differential and integral outputs of the three term controller and spent years developing more complex electromechanical control systems.

I like your definition of processes (like economic policies) as taking place within structures that are built upon foundations. But while productivity is surely necessary for economic activity, I suggest Osborne’s foundations are faith in freedom, self interest, competition and choice. The Coalition believes in these and the Tory Party has long judged them right for business. Americans have a stronger faith in them due their unique genesis. Peter Day described this in Prophet Motive; In Business, BBC Radio 4, February 2009. It’s still available from their archive at

This faith is seductive. It appeals to our instinctive wish for freedom that emerges when things are going well. Simply it says that if all pursue their interests, good outcomes will result. And labour productivity has increased massively since we adopted systems based on these foundations; first utilitarianism then capitalism and more recently, welfare capitalism. Could Osborne believe that balancing the budget is in the Coalition’s interests? President Hoover did this after the crash of 1929 and PM Thatcher did it in the 1980s.

But these episodes went badly. Hoover prolonged the depression. And to restore full employment, monetarist Thatcher allowed the money stocks to increase too much whereupon inflation took off. Then John Major raised interest rates and took us into the ERM. Unemployment rose above 3 million and he doubled the national debt. This is how New Labour got a relatively good economy and had to repay some debt to slow the expansion.

The problem with stimuli based on the postwar period is whether to restore exchange controls and limits on bank credit and whether to implement a prices and incomes policy. This would be hard as none is popular and national governments have little real power. Yet if excessive saving globally and inadequate real wages remain, the stimuli may increase indebtedness and could delay better reforms.

UNCTAD considered this problem in its Trade and Development Report, 2010: Employment, globalization and development. The Highlights are at and I recommend the Overview.