The austerity mirage
There, I’ve said it. Alas all those hours of news coverage devoted to the mean British government reducing spending with alacrity was in fact all a fib. The simplistic tale where the bankers are to blame for everything including commuter train delays isn’t true either. That’s not to say bankers are above suspicion for helping create this mess - far from it - but the simple truth is economic debate has been shaped by juvenile “have your cake and eat it: today!” politics for so long, that most everybody has lost touch with reality.
Worst of all is this doesn’t just impact “the sceptered isle,” it applies to almost every country on earth. A few wonders may yet escape the rude awakening, (e.g. Estonia with 10 percent debt/GDP) but the outlook is worrying in the flaccid Western European economy.
The current government of Britain, portrayed as a Dickensian miser, is in fact constructed by PR men who clearly have little idea how to get the economy under control. Admittedly that is an improvement on their predecessors and other Western governments still clinging to the misguided belief that money will miraculously waft from the trees in ever increasing quantities to cover dizzying welfare bills.
Supporting welfare is logical humanity, paying for that safety net is becoming unsustainable. The last sentence escapes most everybody apparently running a Western economy. Then there is the dizzying arrogance of central bankers who have conjured more debt out of thin air in return for little or no lasting economic growth -and a ludicrous wealth bonus to the richest in society. In due course I suspect fallout from the QE [quantitative easing] folly will make commercial bankers look almost saintly by comparison to their central banking brethren.
Back to austerity, the grim truth is that having inherited a gushing hosepipe flow, 4 years of weak coalition government has simply reduced spending growth - spending is still increasing. This ugly point has been writ large again in recent UK statistics: q.v. in the first half of 2014, instead of the predicted 12 percent decline, UK spending was actually up 10 percent year on year! In other words the “austere” (sic) government of tough Chancellor (sic) George Osborne is, really just a slightly less excessive version of Gordon Brown who operated a decade long economic suicide pact masquerading as a government alongside Tony Blair. Or to put it in real money, the UK government is borrowing over $3 billion a week to pay for government services the country simply cannot afford.
So, this brings us to a really nasty denouement.
First up...and this will come as a shock to most anybody who has consulted the media for some years: purely defined, British austerity is a myth. The British government is spending more now than it was when even the profligate Labour Party left office after a deranged spending spree. Moreover, the terms of the economic debate in Western Europe (and increasingly North America), are, alas, not remotely realistic.
Tax takes have increased to the point where raising rates further largely fails to garner any new revenue (...besides, it strangles investment, and hence, growth). The ugly truth is that government spending has been out of control for pretty much the entire post war period. Keynesian concepts have been stretched to breaking point to justify a state which, like a child at a dessert buffet, maintains “eyes larger than its stomach.”
The worrying thing is that the wondrous “elite” who govern much of the West, whether it’s President Obama or either party at work in Congress, through to the Mediterranean basket case economies, or indeed supposedly “responsible” Britain and Germany, are all living in a rarefied atmosphere: call it never-never land. The status quo is simply unsustainable with no way to pay for the massive debt amassed over a spendthrift half century. The "Kickcanistan” mentality has delayed any outbreak of fiscal prudence, creating a massive liability for future generations.
Supposed recent “austerity” has merely been the UK trying to slow the growth of spending (from utterly egregious to merely deeply disastrous), not actually reducing the vast amounts spent on bureaucrats and benefits alike. Neither is sustainable. Moreover storm clouds are growing globally with Chinese growth slowing…while sooner or later Western interest rates will rise, threatening to expose a bay full of naked swimmers.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.