If there is high unemployment, and little buying power for goods and services, then government cuts raise unemployment higher, cut buying power further, and thus snowball a slump.
And yes, that is what has happened with George Osborne’s economic policies. Statistics now show a decline in output for two quarters (six months) in a row, which is the rule-of-thumb definition of a recession. Real life shows continuing high unemployment, at best levelling off, and steadily dropping real wages.
In the Great Depression of the 1930s, there was a quicker recovery. By 1934, four years after the slump of 1930, economic activity had recovered and risen above its 1930 level. In this depression, output is still way below 2008 levels, and most of Osborne’s cuts are yet to come.
Labour shadow chancellor Ed Balls is right to say that the Tories’ “austerity plan is self-defeating and cutting spending and raising taxes too far and too fast would badly backfire”.
He is also right that “far from the eurozone being to blame for Britain’s woes, it was only growth in the EU and the rest of the world which kept us from going into recession earlier. Excluding exports, the domestic UK economy has now been in recession for a year”.
Despite the calamities in Greece, Spain, and other countries, in aggregate the eurozone and EU economies have been doing not as badly as Britain.
In 2011 EU output rose by 1.5%, eurozone output by the same figure, US output by 1.7% — and UK output by 0.7%.
British capital has had modestly expanding export markets, all the more so because it has a bigger proportion of its exports going to the slightly-less-sluggish USA than do other European countries. The recession in spending within Britain, and output for sale within Britain, has been even bigger than the overall recession.
Lacking from Ed Balls, and Ed Miliband in his “five priorities for the Queen’s Speech” (30 April), however, has been any real alternative to Osborne. Miliband denounced the Tory/Lib-Dem government as “too close to the rich and powerful; out of touch with everyone else”. But his own proposals were piffling:
• restoring the 50% top tax rate, reversing the cuts in tax credit;
• pressure on the utility companies to restrain electricity and gas prices;
• a limit on train fare increases;
• stronger public restraint on rip-off surcharges by banks, airlines, etc.;
• money from a tax on bank bonuses into a youth job scheme.
Nothing about reversing the cuts in the NHS (now running at 7% a year) or in schools (10,000 teachers’ jobs lost last year). Nothing about funding so that local councils reverse their cuts in jobs and services.
Nothing about a concerted effort to tax the rich, or to establish public and democratic control over the banks and high finance.
Osborne’s argument is that social spending cuts reassure global financial markets, so enable the British government to borrow at continuingly low interest rates, and so enable private capitalist business to borrow and expand without being “crowded out”.
It rings hollow, for a start, because bank lending to business is still way down. But the real reason for Osborne’s cuts drive is not the same as the official “good reason”.
Cutting social spending and using high unemployment as a lever to worsen workers’ wages and conditions or even to crush union organisation may lengthen a recession — but it makes sense for the rich because it sets the conditions for a capitalist recovery, later, to start with low costs, high profits, and stricter control over labour.
Alan Budd, who was an economic adviser to Tory prime minister Margaret Thatcher in the 1980s, recently summarised the guideline for Tory policy in the 1980s: “raising unemployment was an extremely desirable way of reducing the strength of the working classes — if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make high profits ever since”.
Osborne’s is the same policy now.
A wealth tax could cancel the cuts
Just one thousand wealthy people in Britain increased their wealth by £19 billion between 2010 and 2011. If that extra loot were taken from them in tax — leaving them still super-rich, only no more super-rich than in 2010 — that alone would yield enough revenue to offset all the Cameron government’s benefit cuts.
If the bulk of their wealth were expropriated — leaving them merely rich, with £1 million each — that would pay off about half Britain’s total government debt, leaving the country with no “government debt problem” at all even from the viewpoint of the most conservative economist.
The top thousand suffered losses between 2008 and 2009, as the rich obviously do when businesses go bust and share and property prices fall. But now they have recouped all those losses, and more.
Real wages are still falling. By June 2011, they were on average down 7.4%. And the “social wage” of benefits, pensions, and public services is falling too.
Apologists used to excuse inequality by saying that it encourages enterprise which lifts everyone’s prosperity, and so long as the majority advance it is just peevishness to complain about the extra rewards for a few.
Studies like the book by Richard Wilkinson and Kate Pickett, The Spirit Level, show the apologists are wrong even in their own terms. More unequal societies generate more illness, worse education, more crime, even if on average they may provide more cars or more flat-screen TVs.
Now the apologists’ excuse falls down completely. The richer are getting richer while average standards are getting worse, and set to get worse for many years to come.
This can be changed only by a working-class fightback.