Thursday, May 24, 2012

Be Outraged: Austerity isn't working

Austerity and growth, of course, are not opposites. We need a good dose of both. But, with European opinion moving against the former and in favour of the latter, Oxfam has chosen a good moment to publish this short book written by eleven eminent economists and social scientists. You can download Be Outraged: Austerity isn't working as a PDF from the Oxfam website.

So, before we forget altogether, let's pause a moment to remember some of the good things about austerity and  bad things about growth.

In the early days of the environmental movement it was widely believed that there were environmental limits to economic growth - that belief was practically what defined the environmental movement in the face of post-war social democracy. The idea that we would one day run out of vital resources was always a little fanciful, but we have seen in oil that the need for new discoveries has led to more hazardous operations - think of the Gulf of Mexico, the North Sea, Canadian oil sands - and more environmental damage. I know that both sides have agreed to call for 'green growth', but the lack of argument here feels more like wishful thinking than a conceptual breakthrough.

Those who oppose austerity want to see more public spending and want to see it financed, not by higher taxation, but by borrowing. But it has always seemed odd to me that the left are so set upon a policy that puts the country in thrall to the people they despise most: international financiers. I suppose it flows from putting ever-growing levels of public services at the centre of your politics and then lacking the courage to raise the taxes to pay for them.

And, of course, borrowing has a cost. Be Outraged is quick to remind us that the analogy between household and national borrowing can be misleading:
John Maynard Keynes famously pointed out the dangers of treating national debt like household debt. Robert Skidelsky, Keynes biographer, has summarised the reasons why this is so: governments, unlike private individuals, do not have to “repay” their debt: they have their own Central Bank and their own currency and they can continue to borrow.
But national debt still has to be serviced: we have to pay interest on it. So with the current UK national debt being somewhere in the region of £1.046 - I make that a 13-digit number - there are good arguments for trying to keep that interest down. And the rate is determined by the markets set by our old friends the international financiers.

So that is the case against growth - or at least in favour of austerity. And perhaps it is because of it that I find the best two chapters in Be Outraged to be those that have least to do with the austerity vs growth debate.

Chapter 6 makes a powerful case for decreasing inequalities in calling for "a recovery for all, not just the few":
The richest 1% (61 million individuals) had the same amount of income as the poorest 3.5 billion (56% of the world’s population). At the bottom end, two in five of the world’s population, live below the international poverty line of US$2 a day; of those, one billion people live in extreme poverty, surviving on less than $1.25 a day.
And chapter 7 discusses "Transforming the financial sector from bad master to good servant":
When the financial sector has been well regulated and controlled, and when well-run public banks have played an important role, the financial sector has played a positive role to support and not undermine the real economy. Examples are post WWII USA and Europe, and many developing countries (like Brazil and India) then and today. The positive experience is clear for public institutions in Europe, such as the European Investment Bank (EIB) at a regional level, and German KfW (Kreditanstalt für Wiederaufbau) at a national level, and in developing countries, such as the BNDES (Banco Nacional de Desenvolvimento Econômico e Social) in Brazil.
All good stuff, but it was just as valid five years ago when the economy was booming. But then one of the weaknesses of Keynesian economics is that people love the idea of stimulus when things are going badly but are deaf to calls for restraint when the economy is booming.

But Be Outraged, which was inspired by Indignez-vous, a multi-million best-seller written by Stephane Hessel, former member of the French resistance, will interest anyone looking for ways out of our current morass. So why not download a copy for yourself?

No comments: