Our nation is facing a dire economic situation, the likes of which haven’t been seen since 1709. It is going to take three years to even get our GDP back to its 2019 level; unemployment could reach 2.6 million by the spring; countless businesses are going under; and in July, national debt was 100.5% of GDP, a figure not expected to fall significantly for years. And if all of that wasn’t enough, Brexit, the biggest foreign and economic structural change to the UK in decades, comes into effect on 1st January. Forecasts for its economic impact are chronic, with a no-deal projected by the Office for Budget Responsibility to reduce GDP by a further 2% next year.
Governments are no strangers to economic crises; recessions have been common since the breakdown of the Bretton-Woods international monetary system in the 1970s and the subsequent deregulation of financial markets from the 1980s. And you’d think that during times of crises, policy makers would all agree on methods for quick economic recovery. But paradoxically, it is during these times of crisis that we see the starkest divides in economic theory. Namely, between Keynesians and Austerians. Or better put, those who want a speedy economic recovery that benefits the majority of the population versus those who wish to forgo economic recovery in favour of political goals.
In 2013, the Financial Times declared Chancellor George Osborne had ‘won the battle on austerity’. The problem is that this was complete rubbish coming from the newspaper that claims to be the UK’s expert on economic affairs. As well as the horrific humanitarian consequences, austerity had the contrary effect to what the FT and Cameron’s government claimed. By imposing severe cuts to our public services in 2010, GDP growth entered into its second dip, something that didn’t recover until the cuts were largely reversed in 2013. Contrary to the fantasy that the Tories successfully pedalled, this eventual uptick was a result of reversing austerity, not imposing it. A similar pattern can be observed in Greece, where a much worse recession was needlessly extended durishe to the outrageous austerity policies forced on the country by the European troika.
The way Austerians sell their case seems very logical: we must pay down debt which will leave us with less money to spend. This is disingenuous: whilst governments could simply pay up what they owe, then cut spending, a more logical way of paying down debt is by first increasing revenue. This is done by boosting GDP. This only happens if people have money to spend, which they don’t during a crisis, and certainly won’t if their welfare is stripped. The most effective stimulus for this is to inject hard cash into people’s bank accounts. This is what Australia did in the wake of 2008, and they avoided the decade-long period of destitution that Europe endured. Moreover, the lie that Tories and other trickle-down economists propagate that if you give the rich banker a tax break, that money will work its way down through society has been debunked time and time again; surprise, surprise, turns out the employer prefers to pocket that money rather than spend it; state money than never gets put back into the economy. GDP isn’t boosted, debt isn’t paid.
Whilst comparing Chancellor Rishi Sunak to his predecessor Osborne would be silly, the Conservatives are still needlessly inflicting wounds into an economy that is in its worst health in 300 years. Public sector pay seems to have taken the hit for increased defence spending: no doubt this will stifle GDP recovery. Yes, Britain should play a leading role on the world’s stage, but in today’s geopolitical climate, military spending isn’t necessarily the best way to do this. Foreign aid can go a long way, another casualty of the latest spending review. (In any case, we lost our seat at the table when we voted for a hard Brexit last December, another Tory manufacture).
Austerity cannot follow this pandemic. We will at some point in the future need to ‘tighten our belts’, but the time to do this is never during a slump. Whilst I sincerely hope the Conservatives won’t be as reckless with the economy as they were in 2010, the fact they haven’t even postponed Brexit screams ideology over economics: it is an act of self-harm at a time of deep national agony. And whilst they continue to dish out millions of taxpayers’ money to incompetent private firms based on political friendships, one can only hope that come the next election they’ll be laughed out of the room for claiming to be the ‘party of fiscal responsibility’.
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