Thursday, 29 November 2012

Tory Debt Fearmongering

One of the most commonly heard justification narratives trotted out to defend Tory policies such as George Osborne's self-defeating ideological austerity experiment and Iain Duncan Smith's brutal attacks on the welfare system is the argument that "the country is broke". There are so many examples of this crude propaganda it would be impossible to list them all, but there are several common themes. The most regular of which are the ideas that the national debt is "too high" and that Labour "wasted too much money". I'm fairly confident that everyone has heard these kinds of argument on a regular basis and it is the objective here to demonstrate these debt fearmongering arguments are both completely false, and also nothing but a crude narrative to justify elements of Tory ideological policy.

To give a specific example of debt fearmongering: On the 8th of November the Tory Police and Criminal Justice minister Damian Green appeared on the BBC show Question Time, where he was confronted with the accusation that debt fearmongering has a harmful effect on the economy. The accusation was made by David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, a guy I disagree with when it comes to monetary policy, but who made a strong argument that debt fearmongering harms confidence ("animal spirits") within the economy. Green's response to the accusation that Tory debt fearmongering has been damaging the economy was absolutely stunning, he retorted with brazen display of  inaccurate Tory debt fearmongering! Here's what he said:
"The reason that the 'animal spirit' of the economy was destroyed was that we had the worst debt of any G20 country, because the previous government spent money like water and left us bankrupt"
The use of the word "bankrupt" to describe the state of the UK economy in early 2010 is clearly inaccurate fearmongering for many reasons, not least of which is the fact that the Coalition government have continued deficit spending (adding to the national debt), meaning that if the UK was "bankrupt" in 2010, it would have been liquidated and sold off for pennies in the pound by now!

The next observation must be that his assertion that the UK economy had the worst national debt of any G20 country is an outright lie whichever way you look at it. checking the 2009 figures reveals that five of the G20 nations had significantly higher debts that the UK (68.5%) as a proportion of GDP behind Japan (192.1%), Italy (115.2%), France (79.7%), Germany (77.2%) and Canada (72.3%). In real terms the claim is just as false; the UK national debt ($2.183 trillion) was significantly smaller than the United States ($14.256 trillion), Japan ($5.068 trillion), China (4.909 trillion), Germany (3.352 trillion) and France (2.675 trillion).

If we examine the tribalistic dig at Labour for "spending money like water", it is also clear that this is a pretty spectacular misrepresentation. Until the global economic crisis hit, the national debt under Labour had never exceeded the 41.9% GDP debt they inherited from their Tory predecessors. Even after the spectacular financial sector meltdown in 2007-08, the debt under Labour rose to 52.1% which is significantly lower than the average debt in either the 19th or the 20th Centuries (the average debt throughout the 20th Century was 89.5% of GDP). In fact, even after two and a half years of catastrophically self-defeating ideological austerity and Tory economic stagnation, the UK national debt has still not even passed the 20th Century average, and is absolutely nowhere near the 1948 peak of 237% of GDP.

Given that the UK suffered the effects of the worst banking crisis in the modern capitalist era during the previous Labour administration, a resultant spike in government borrowing must be expected. Before the crisis hit Neo-Labour never exceeded 42% (lets call it 57% if we include all of Gordon Brown's dodgy PFI scams that were, and still are, misleadingly kept off the national balance sheet). This is quite high compared to the Thatcher years of industrial decline, social unrest and mass unemployment, but compared to virtually any other period in the last 200 years it is actually low.

Once the economic crisis hit, the economy contracted sharply, meaning that simply maintaining government spending plans that had been drawn up without foreknowledge of the impending crisis would mean adding to the debt. Although Labour can be blamed for intensifying the effect of the global economic crisis with their disastrous financial sector deregulations (which were supported by the Tories, but criticised for not going far enough!), their decision to abandon Gordon Brown's stupid and arbitrary 40% of GDP "golden rule", to stick to their government spending plans in order to avoid further "shocking" the economy and to attempt to stimulate the economy with policies such as the VAT cut were actually reasonably sensible. On the other hand, the decision to bail out the recklessly over-leveraged banks, (a plan which was enthusiastically supported by the Tories) was abject lunacy, but we'll gloss over that idiotic short-termist blunder for the sake of the argument.

Labour's decision to stimulate the economy by cutting VAT and not ruthlessly slashing spending, actually produced some half-decent results. After five consecutive quarters of economic contraction at the height of the global financial sector crisis, the UK returned to weak economic growth between Q3 2009 and the general election.

As you can see, this is far from a glowing review of Neo-Labour's economic record, but in comparison to the ideologically driven lunacy built upon a foundation of debt fearmongering lies and the consequent double-dip recession and vast trade deficits that have followed, it actually begins to look like reasonably competent stuff.

So to return to the subject of debt fearmongering, simply through the analysis of one specific example of Tory debt fearmongering, the premises that the debt is "too high" and that "Labour spent too much money" have been blasted to bits as the lies and misrepresentations they are.

Another factor that must be considered when we're talking about the national debt, is the fact that the Bank of England's manipulations of the government bond market with £375 billion in freshly invented money have resulted in the lowest cost of UK government borrowing since records began! If there is ever a time when more government borrowing could be justified, it is when the rate of interest on government borrowing is significantly lower than the rate of inflation. A situation where risk averse lenders are actually prepared to incur real terms losses in order to stash their money in the relative safety of the UK bond market. Obviously it would be important to spend the borrowed money wisely, on things that stimulate economic growth (fiscal multipliers such as infrastructure investment, education, science, R&D, social housing construction, welfare payments...) however, what the Tories are doing is cutting spending on all kinds of fiscal multipliers, whilst deficit spending in order to hand out ever greater sums to the wealthy (via tax cuts and the dreation of tax loopholes) and to a host of parasitic outsourcing companies and pseudo-charitable organisations that have built their business models on soaking up taxpayers' cash.

Not only are the Tories failing to cut the national debt they are fearmongering about, they are deficit spending on an absurd range of utterly wasteful corporate welfare scams and tax cuts for the wealthy instead of targeting the cheap money they have at their disposal at things that actually promote long-term economic growth (infrastructure projects, affordable housing construction, direct loans to small and medium enterprises, scientific research, education..). In fact they are not only failing to spend on proven fiscal multipliers that drive economic growth, they are actually deliberately targeting them with their ideological spending cuts.

Tory debt fearmongering is an obvious propaganda campaign aimed at duping the public into supporting their drastic ideological policies, whilst government largess continues apace when it comes to drawing up insane schemes aimed at directly distributing taxpayers cash to private sector interests to run all kinds of services including the NHS, frontline police, ridiculously inefficient welfare programmes, thousands of secondary schools, farcical Olympic security operations and even Britiain's arsenal of nuclear weapons.

The debt fearmongering narrative is built upon a foundation of transparent lies, and the policies it is intended to justify are actually adding to the nation's indebtedness by slashing investment in proven fiscal multipliers. What is even worse, is that the whole narrative of deficit reduction and spending cuts is completely thrown out of the window every time a Tory minister signs another absurdly one-sided contract to distribute ever greater cash mountains to unaccountable private sector interests.