Dangerous Ideas Lead to Dangerous Places

At time of writing (October 2016) the British economy and its political classes are undergoing the shit-storm called “Brexit” – the British exit from the European Union. The referendum that lead to this catastrophe was marked by the most blatant use of post-factual politics this nation has seen since the 1930s. All reason was abandoned. Like turkeys keen on Christmas a small majority of voters were convinced that life outside the European Common Market would be like riding unicorns and eating candy-floss. Events were to rapidly tumble out of control as the bubble quickly burst: big business and the big guns of the British economy greeted the outcome with horror. What madness lead to such a self-induced conflagration? Why were people so desperate so as to believe ANYTHING would be better than what they had? The blame lies not with immigration policy [for Britain never had an immigration problem]. The “crisis” was invented by the extreme-right-wing media as a cover for a different root cause: the UK Government’s policy of “expansionary austerity” – the concept that you can starve an economy into being successful.

Where does such “Zombie economics” come from? In Mark Blyth’s 2013 book “Austerity – The History of a Dangerous Idea” [ISBN 978-0-19-938944-5] the bones of the problem are laid bare:

Austerity is.. “…quack medicine being hailed as a wonder drug despite the evidence.” “…a hyperbolic neoliberal fantasy looking for a set of of supporting econometrics.”

“…facts still don’t get in the way of good ideology, which means harmful policies are still the only game in town.”

Mark is a Professor of International Political Economy at Brown University in the USA yet a large part of his treatise is focused on the European Union and its long history of austerity-as-policy. Although a ‘good thing’ the buyer should be aware that Blyth fills the book with a very deep trawl through the recent economic history of the world. Unless you are specifically familiar with the workings of the European Central Bank or the Bond Markets it quickly turns into a tough read. More of a put-downer than a page-turner. But stick with it – this was not voted Best Book of 2013 by both the Financial Times and Bloomberg News for no reason. This isn’t just left wing polemic, it truly is a very detailed analysis of austerity’s failings going back over a century or more. Blyth makes a compelling case for why austerity is pursued as a policy, who benefits, who loses and why it can be made to look like it works.

Expansionary austerity is just another way of making the poor pay for the problems of the rich. It represents the continual victory of the rights of capital over labour. In more recent terms it has been the price paid for bailing out the banks in 2008. Afterall, what was that bailout for? It was to protect the wealth of the top 30 percent of society by distributing the costs of failure amongst the lowest 70% of the population. The cost of protecting the assets of people who have assets is paid by the people who have few, if any, such assets. In order for this to be perpetuated a subterfuge has to be used. Essentially democracy must be undermined. For the bankers and their friends in government democracy is simply a form of ‘moral hazard’ to be subverted.

The results were inevitable: growing inequality and disaffection by a population who believed (rightly) that they had been disenfranchised from their own democracy. Into such an environment you can convince an electorate to believe any desperate fantasy just as long as it doesn’t change the underlying DNA of the economics: the rich have to be protected from the poor and the poor must always pay for the rich. The balance of power after referendums and elections merely shifts between different factions of the same class of people all of whom share the same basic beliefs. Hence blame must always be shifted to a third party: the poor, immigrants, foreigners, Muslims, terrorists… Jews…

Nothing about these events are new. We have been here before. One of the most telling observations in the media after Brexit came from a Radio show where the host James O’Brien compared the speeches from Conservative Party Conference to the words of Hitler in “Mein Kampf”. Both implied that there should be plans to list and track foreign workers and that employers of such workers were somehow being unpatriotic. If you read one section of Blyth’s book you should try out chapter 6 “Austerity’s Natural History, 1914 – 2012” where the author details the troubles with the Gold Standard after the First World War. This was a new period in our history because, as Blyth puts it:

..we now… “…encounter states that are both big enough to cut, and democratic enough to cause problems for austerity policy.”

Prior to such times any austerity policy could simply be the whim of a monarch or emperor but it would have little impact upon the majority of people’s lives since few benefited directly from the intervention of the state. This came to an end in the inter-war period. Austerity in the 1920s and 1930s revolved around the concept of balancing international trade through pegging national currency to the price of gold. The allure for capital was great, the impact upon the poor was devastating. Blyth likens the adherence to the gold standard and the inter-war period to Europe’s love affair with the Euro currency zone in the 21st Century. Both were an attempt to link the value of a currency to something else as an ideal that failed the practical realities of the day.

Austerity was used though-out the major powers in those years: Britain, the USA, Germany, Japan, Italy, France. The view of the British Treasury was that all government spending was bad as it pushed out private investments. That view prevails to this day: the idea that private investment builds rational expectations from Government dis-investment policy and rushes in to fill the void. Keynes saw it the other way: private money follows government money. Keynesian views (and sanity) were to finally prevail through World War Two and for much of the time after. Before then it was only the profits of finance that the British Treasury wished to preserve. The City of London was not allowed to lose any money. So somebody else had to. A familiar tale.

Germany is the prime example of austerity ending with tragic consequences. The German experiment with austerity lasted from 1923 to 1933. The Nazis came to power by being the only party to campaign against it. In 1932 National Socialist economic policy was anti-austerity with the words “unemployment causes poverty, employment creates prosperity” – their line being that job creation would boost the economy. They were to move Germany off the Gold Standard as soon as possible, the profits of international financiers were of no interest to them. Subsequently the Nazis came to power through the ballot box. Hitler’s power was then reinforced through several referendums of the German people.

In Japan the tale was similar. The civilian government pursued austerity to get them onto the Gold Standard. This positioned undermined the military as spending on the Navy was slashed. After a round of political assassinations the military took control of the Government and began rearming and expanding the Japanese Empire. In France the same story prevailed with military spending cuts being enforced by the government right up to 1939. Hence the French forces that met the full force of the Third Reich were armed with the weapons of World War One.

“As one scholar put it tellingly, by 1936 Hitler knew one thing. The Franc would be defended at all costs. As for France, that was another matter entirely.”

Thus the world drifted into a global conflict marked by antisemitism, race-hatred and ethnic extermination. There was always someone else to blame.

Even in more recent times the introduction of austerity has always arrived hand in hand with the politics of hate. It brings to the surface underlying ethnic discontent. Such consequences are an inevitable consequence of forcing people to undergo hardship through withdrawal of essential services, money and resources. In times of scarcity people will turn on each other as a displacement activity to fight for scarce resources even if those resources lie elsewhere. The irony of blaming the poor or immigrant refugees from war-torn nations for the failings of the banking sector cannot be lost upon us. Travel this day to Latvia where the biggest political party opposed to austerity was the party associated with ethnic Russians. Latvians hate Russia hence their views are easy to isolate.

Austerity “brought us class politics, riots, political instability, more rather than less debt, assassinations, and war. It has never once ‘done what it says on the tin’. “

So what are the alternatives to austerity? Blyth holds up some glimmers of hope. Iceland is one example where the austerity medicine after 2008 was uniquely different from that in other nations. Their banks were allowed to go bankrupt.

“Their debts were not socialised; instead bondholders and foreign creditors bore the brunt of the adjustment.”

Yes, that really happened. What is more, Iceland famously put their bankers in jail in an episode not retold in Blyth’s book. Iceland introduced capital controls to prevent the collapse of the currency. There was a shift in the tax code to a more progressive system (ie, higher taxes for rich people). The measures worked better then anyone expected. In 2011 growth returned to 3% based upon physical exports with the country on track to balance the budget by 2014. Compare that to what happened in Britain where anyone who suggested raising taxes on the rich was condemned by the right wing media as a ‘communist’ and lampooned out of all possible credibility. What happened to us? Britain came out of this debacle a weakened and divided society with ever deepening inequality. The opposite was true in Iceland.

Blyth expects the austerity bubble to be burst. Taxes will have to be raised on the rich. No question. He introduced research suggesting that the numerous tax cuts in the USA have never had any boosting effect upon economic performance. There was no correlation with economic growth. Debt reduction by taxing high earners is now a serious proposition. The bailouts must be brought back to the taxpayers. Indeed by 2005 the IMF officially recognised the “total failure” of the Washington Consensus reforms. Some of the primary architects of austerity in the economics profession were admitting by 2014 that their models were probably misguided and it didn’t work afterall. Yet these are mere glimmers of hope in a vast morass of right-wing ideology that continues to blame the poor for the failings of the rich. Austerity is not a legitimate response for it only hides the problem from the voters and, instead, gives them false-choices and new enemies to pursue. Where the politicians identify their constituency as being the financial sector then ethnic hatred must follow because we are not allowed to blame the bankers. Blyth is frank:

“Banning democracy would be effective but might be unpopular.”

“Might” huh? But just look at what happened in Greece and Italy. Their democratically-elected Governments were overturned by central banks and the technocrats were put in charge. This really happened, not during the Second World War, not during the Cold War, but in peacetime in the 21st Century. In my lifetime. Not a whimper was raised.

“..austerity’s genesis [is] ..the pathological fear of government debt that sits at the heart of economic liberalism.”

In other words, debt “ruins accumulated wealth”. This was the view of John Locke going back to the 18th Century. Other classical economists had similar views. It remains in the DNA of modern economics. it remains hard to shift but as Blyth demonstrates it was wrong then and demonstrably so. David Hume predicted catastrophe for the British due to excessive debt at the moment precisely before it became a global power for another century. We never learn the lessons from history. We see only what we want to see. Such classical argument against debt evolved at the time of Kings when there was no democracy. A King or Queen is not the same as the modern state. Times have changed, thinking did not. Liberal economics grew up in a time of unrepresentative sovereigns – liberal formulas for downsizing the ‘big state’ are simply not appropriate in today’s republics. Mass democracy does not fit this way of thinking. We need new ideas. With Keynes we had those ideas but lost our way. Today all politics can do is blame the public sector for everything that goes wrong in the private sector.

“Different economic theories therefore empower, and disempower, different political and economic constituencies.”

Economics is not a science. it is witchcraft used by the powerful to control those people who are bedazzled by its magic. The result is a polarised society that has the power to fix nothing. Only catastrophe can follow.

“Populism, nationalism, and calls for the return of “God and gold” in equal doses are what unequal austerity generates, and no one, not even those at the top, benefits.”

So that is where we are folks. “This is why austerity is first and foremost a political problem of distribution, and not an economic problem of accountancy.” We find ourselves in a nasty place with no way forward or back. Trapped by a benefit to a few who hold the reins in a place where the very victims are convinced that the fault lays always just beyond reach – in the hands of others. Yet the system forbids them from ever recognising the true face of that ‘other’. Their attentions are always distracted by bread and circuses – left knowing only how to point blame at the blameless. Truth is an unacceptable commodity. All now is fiction and the enlightenment is dead.

In one poignant slip by a UK Independence Party MEP, after their successful campaign for Brexit, he admitted they were successful only because the “Remain” campaign relied solely upon facts. The Brexit “Leave” victory was sealed by gut emotion. They stole the hearts and left the minds behind. All disingenuous talk, by the extreme right, of the Europhile “urban elites” is a smokescreen too. This “elite” holds no real power other than the ability to tell fact from fiction. These are the educated half of the nation. The half that knew that lies could destroy the country and remain baffled that such preposterous nonsense could be believed by anybody. Hence they voted for reality. This “elite” were the people who knew how to question the counter-factual statements of the right-wing press. Good people who realised the hope only lay in remaining in Europe. The rest rejected the “experts”. Once this elite of people surpass 50% of the population what kind of elite are they? And what future counter-factual politics? What future for any democracy? Where next?

About post-carbon-man

A passionate advocate of a peaceful transition to a sustainable political-economy, Mark hails from a working class farming background. Today he is a Company Director and Chairman of the Low Carbon Chilterns Co-operative. Whilst at University (Engineering Masters) he was active in Conservative Student politics but has had no affiliation since. He has travelled widely on business covering the USA, Europe, Middle East and Central Asian Republics. In 2007 Mark founded Post-Carbon-Living and a year later co-founded Transition Town High Wycombe. He lives with is wife & daughter in a home they retrofitted to be carbon-neutral. Today he blogs about surviving politics on a shrinking planet and is passionate in his rejection of Nationalism.

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