Wednesday, 22 April 2015

The UK Austerity Myth

All 3 UK mainstream parties (Conservatives, Labour and Liberal Democrats) and pretend protest party UKIP believe in some form of austerity. Since the 2008 global banking crisis which crashed the international economy austerity has become the consensus of most governments and institutions like the IMF.

It is intuitive to sell cuts to a public who are led to believe that running a country is like running a household. In hard times everyone can relate to the tightening of belts. We hear phrases like 'fix the roof while the sun is shining' and 'maxed out the credit card'. The whole extended metaphor is simplistic.

A country can borrow on global markets and print money via central banks. Debt and deficit are part of nations' finances because a global economy accommodates borrowing for investment. Households cannot use these tools and are not responsible for a population through which they can raise funds through taxation - if they dare. Still the austerity salespeople would like us to think this metaphor is valid.

What actually happens under austerity is a crisis of confidence that means banks stop lending, businesses stop employing and consumers stop buying and the whole household demand economy enters quicksand. Job numbers fall and with it income tax take. Is this ever mentioned by media vested interests?

Nobel-winning economist Paul Krugman writes:

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.

And yet despite the austerity rhetoric the current UK government is actually spending more than in pre-recession days. In 2009 and the start of 2010 the UK was recovering from the the turmoil of the crash under Labour's  economic plan. Then the newly elected coalition started taking an axe to the UK finances leading to stuttering performance until 2013 when they realised what many knew, austerity was incorrect. The legacy is 2 years wasted and then a return to massive borrowing while hypocritically bashing Labour. 

After the 2008 bak bailouts prevented world finance from collapsing. It was necessary but then that is an indication of the broken global system of finance. Quantitative easing is the same socialism for the rich.

The scale of the support currently provided to UK banks has fallen from a peak of £955 billion to £512 billion, but the amount of cash currently borrowed by the Government to support banks has risen by £7 billion since December 2009. It is likely the taxpayer will be providing support for years to come.

So what have the coalition government done they have punished public sector workers, the low paid, and the vulnerable. Further pain would be felt if the Conservatives remain in power after the forthcoming election when they restart their already-failed-once austerity.

Meanwhile there is little sign of a deterrent in the Libor rate scandal (CORRECTION 1 since 2012) or for banks laundering drug money affecting billions.

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