The deficit obsession: starving the children to pay off the mortgage early

By Bernadette Meaden
April 29, 2015

In May 2010 our economy had bounced back from the banking crisis and was growing well. In May 2015 the economy is fragile and growth is slowing steadily. This would suggest a change of course is necessary, but we are told that no, we must carry on down the austerity path.

In an excellent piece in today’s Guardian, Nobel Prize-winning economist Paul Krugman explains that the case for austerity has long since collapsed, but stubbornly persists in Britain.

"The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.

"I don’t know how many Britons realise the extent to which their economic debate has diverged from the rest of the western world – the extent to which the UK seems stuck on obsessions that have been mainly laughed out of the discourse elsewhere.

"Is there some good reason why deficit obsession should still rule in Britain, even as it fades away everywhere else? No.This country is not different. The economics of austerity are the same – and the intellectual case as bankrupt – in Britain as everywhere else."

British politicians are now firmly wedded to the austerity narrative, and clinging to the fairytale they told us to justify austerity: that in 2010, Britain was in as perilous a position as Greece. This was nonsense, as Simon Wren-Lewis, professor of economics at Oxford explains clearly here. "The situation of a country with its own central bank, like the UK, is quite different from a country without, because the central bank can (and in the UK will) act as a lender of last resort, so the government will never ‘run out of money’. That simple fact is sufficient to prevent any crisis happening for an economy like the UK."

Another technique used to justify austerity has been to compare the nation’s economy to a household budget. This too is nonsense, as households do not have the Bank of England to draw on.

Yet as if the rhetoric surrounding our economy couldn’t get any more bizarre, the Conservatives have now said they would make it illegal for a Chancellor during the life of the next parliament to raise income tax rates, VAT or National Insurance. This desperate ploy is politely derided by the BBC’s Robert Peston, who points out that whilst this may or may not win votes, it would tie a Chancellor’s hands to a dangerous extent, should another financial crisis occur. And of course it is very bad news for struggling public services, as they see the possibility of future investment shut down.

Robert Peston also points out that at present, the UK government can borrow "at interest rates which are less than zero (adjusting for inflation)". But instead of using this golden opportunity to borrow and invest, to grow the economy, strengthen public services, and provide decently paid jobs for people, we are inexplicably choosing the pain of austerity. It is quite mystifying. Austerity is like parents deliberately starving their children so they can pay off the mortgage early.

Meanwhile, paradoxically, a government which uses debt as some kind of bogeyman appears to be quite happy to see our fragile economy dependent on private debt. In March 2015 accountants PwC reported, "as the total household debt (including secured debt) to income ratio heads towards 172 per cent in the coming years – exceeding its previous peak in the run up to the financial crisis – affordability of this debt pile may come into question.’

People are relying heavily on borrowing to maintain their living standards, and for people hit by austerity, the borrowing is not for luxuries, it is for survival. As PwC says, ‘dependence on credit for essential items increases significantly among 35 to 44 year-olds, with close to 20 per cent borrowing simply to make ends meet.’

The government, which can borrow at zero rates, is presiding over a situation where people are paying exorbitant rates on credit cards and overdrafts simply to survive. They are transferring the debt to those who can least afford to pay it.

But this spending based on personal debt is perhaps all that is keeping the government’s economic reputation afloat. With construction, production and manufacturing sluggish or declining, Robert Peston says, "if we weren't a nation of shoppers and restaurant eaters, there would be very little growth at all."

Austerity is a failed experiment which other countries have abandoned. It causes pain with no gain, and in fact stores up problems for the future. The fact that four British political parties (Conservatve, Labour, Liberal Democrats and UKIP) still cling to it to varying degrees does not bode well, whatever the result of the General Election.

* More on the issues in the 2015 General Election from Ekklesia: http://www.ekklesia.co.uk/generalelection2015

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© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden

Views expressed by individual contributors do not necessarily reflect an official Ekklesia view.

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