George Osborne, the British Chancellor’s autumn statement may be many things, but fair and just it is not. Some of the poorest members of our society, public workers, who do valuable work that distinguishes a caring society from one that is not, are to carry a heavy load for dire economic conditions not of their making. The disastrous economic outlook is to be remedied by public sector workers accepting substantial cuts in their meagre wages, and additionally by a cut of 710,000 jobs in the next four years. An acknowledgment that his plan A is not working came in the shape of a paltry £5bn investment in infrastructure, with the hope that an additional £20bn would be invested by pension funds.
People can accept hardship and cuts if they perceive that the load is being shared fairly and justly, with those most able shouldering a heavier load. David Cameron, a month after taking office (June 2010), made his “we are all in this together” speech in which he said:
I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair. I want this government to carry out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country. I have said before that as we deal with the debt crisis we must take the whole country with us – and I mean it. George Osborne has said that our plans to cut the deficit must be based on the belief that we are all in this together – and he means it…But this government will not cut this deficit in a way that hurts those we most need to help, that divides the country or that undermines the spirit and ethos of our public services. Freedom, fairness, responsibility: those are the values that drive this government, and they are the values that will drive our efforts to deal with our debts and turn this economy around.
I think any objective assessor of reality would see the hollowness of the above rhetoric.
If one is to judge the health of society, two measures stand out. One is the level of unemployment, and the other is income inequality. The lower these are, the healthier a society is. The autumn statement fails on both counts. The actions proposed widen the gap between the rich and the poor, and they increase the level of unemployment. Society will pay dearly for such short-sighted ideologically driven policies. Research shows that alcoholism, drug addiction, crime, antisocial behaviour, mental illness, and family break ups will rise as a result of these measures.
Its effects on the economy are just as bad. The unemployed need to be supported by those at work, instead of paying taxes had they kept their jobs. They have very little to spend, thus depressing demand. This in turn leads to less investment in new businesses and the further contraction of existing businesses. This vicious circle achieves the opposite to what is intended, that is an increase in the structural deficit (the difference between what the government collects in taxes and what it spends). Loss of jobs in the public sector was not compensated for by job creation in the private sector as predicted by George Osborne.
Meanwhile in the Alice in Wonderland world of the banks, the taxpayer had to rescue them from the folly of their actions to the tune of £850bn. The government then pumped into their coffers an additional £275bn, in two tranches, conjured up out of thin air, under what is called “Quantitative Easing”. I am not a fan of QE as I mentioned in a previous piece, but if we are going to do it anyway, why not do something good and useful with it, instead of pumping it into the banks?
What happened to that money? Here is the view of Sir Terry Leahy, the former boss of supermarket Tesco, quoted in the Independent talking about the first tranche of £200bn:
QE created an awful lot of liquidity intended for the real economy, but found a home in markets and speculators looking for quick returns.
QE1 [£200bn] – combined with Bernanke’s much larger US asset purchases – just handed banks lots of extra money which they used to speculate on commodities such as oil, boosting their price, pushing up inflation and making life even harder for cash-strapped consumers.
The rise in the price of oil is being mentioned by the government as one of the reasons that the figures about growth etc. are so wrong. There you have it. Pumping all that money into banks could have caused a substantial part of that rise.
Perhaps someone could explain to us ordinary citizens, why it is that if the government intended that money to help the real economy, it was not put directly into the real economy? It could have used part of that huge sum to maintain the employment in the public sector, thus keeping the purchasing power of up to three quarters of a million people who would continue to pay taxes.
It could have invested the rest in infrastructure projects and supported innovative high tech projects where Britain has a research lead over China; money is needed to bring systems and products from research to market. It could have invested to develop renewable green energy systems that would have readymade markets worldwide today, with demand increasing as reserves of fossil fuels are depleted. All of these would have bequeathed our children and grandchildren a way of earning their living in the future. Why pump those billions into the economic equivalent of the cosmic black holes, the banks?
Why don’t commentators and pundits on television and radio ask some of these questions? Where are Evan Davis and Jeremy Paxman when you need them?
The moral of the story for the government is: look after people, keep them employed and the economy will look after itself.