Moody’s decision last month to downgrade the UK’s credit rating for the first time since 1978 was the final metric by which Osbornomics has proven a failed policy on every front.
The growing opposition to austerity among economists, commentators and more notably, in business, shows that austerity is disastrous for everyone but those who would be so deceptive as to impose cuts as a means to delivering a small state. At the last count, some of the most vocal opposition to austerity included Jim O’Neill of Goldman Sachs Asset Management, the IMF, and now it seems Moody’s – institutions not exactly known to be bastions of left-wing economics. Deficit hawks are fast losing the argument and if there’s any hope of a recovery then government must change course. Britain has been held to ransom by a party which prioritises poorly timed deficit-reduction over growth and jobs. Labour should capture this mood of growing disillusionment and advocate for a real alternative which puts people back to work and delivers the recovery we so desperately need.
The idea of ‘expansionary austerity’ might be an interesting topic for an undergraduate macroeconomics class (which I have the joy of sitting through every Monday), but we’re (un)fortunate enough to have lived through the results of Boy George’s policies. The UK has faced a double-dip recession since 2008, we had growth in the third quarter of 2012 (boosted by the London Olympics), but the last three months of 2012, where the economy contracted by 0.3%, killed off any hope of a real recovery and demonstrated that depression economics is here to stay. The UK economy is stagnating and austerity isn’t helping.
I’m not a huge fan of relying on moral arguments to win debates on economics, but I can’t help it in this case. Advocates of government spending weren’t just right in dismissing austerity as a policy that would kill off any potential growth; they held the moral high ground in pushing for policies which put jobs and employment, things that minimise the human cost of recession, over obsessive deficit-reduction.
The case for government spending starts with the ineffectiveness of monetary policy in getting us out of depression. Lowering interest rates usually induces enough borrowing and spending to increase consumption and spending to boost output. Yet, the Bank of England’s record low interest rates have failed to deliver an effective recovery. That leaves us with one other key lever which hasn’t been pulled, yet. A fiscal policy defined by stimulus and government spending would offset the on-going deleveraging in the private sector and would promote growth and jobs. This is basic Keynesian economics, but it seems the government can’t bring itself to adopt the only policy that can bring us out of depression. We managed to escape the perils of the Great Depression by de facto stimulus in the military spending that was necessary for WWII, we would do well as a country to implement fiscal stimulus that would see a return to growth and prosperity.
Not spending isn’t really a viable option. The damage and immense human cost of austerity isn’t limited to crude figures on GDP and unemployment. The impact of Osborne’s disastrous economic policy impacts our politics also. We know from history that the rise of the far-right is often facilitated by economic depression. This episode of economic decline is no different. Right-wing populist parties are on the rise across Europe; in France, Finland, Austria, Hungary and Greece. Whilst the rise of fascism in the UK has been less severe than on the continent, we’d be fools to become complacent while Osborne is still at the Treasury.
Labour should be the party that promotes the interests of working people. That means advocating for a stimulus and demonstrating that we as a party would adopt policies which put people back to work. Credibility on the economy has so far been defined by fiscal conservatism, accepting that as a given harms people and Labour must do all it can to win this most crucial of debates. Only then will we fulfil our responsibility as HM Opposition and only then can we be the party we were meant to be.
This article first appeared on Next Generation Labour.
