William K. Black, Quito: May 17, 2015
One of the great ironies is that just as neo-liberal economics and “modern finance” were falsifying each of their core claims Tony Blair led New Labour to embrace both dogmas. The result was a double economic catastrophe and it also led to the defeat of New Labour at the polls. I have already explained how Blair’s and Gordon Brown’s embrace of the most criminal and corrupt elements of the City of London (and their dogmas) and their resultant unholy war on financial regulation caused the UK financial crises and the UK’s Great Recession.
But after this catastrophe, New Labour’s attachment to insane austerity policies became a death grip. It also led to the single stupidest political action by a New Labour official (Liam Byrne) – one that continues to haunt his party today. My focus, however, is on Byrne’s explanation for why he gifted the Tories with the perfect ammunition to use against Labour. My point is not the quality of his attempt to explain his behavior, but rather that his explanation discloses how economically illiterate New Labour was. Byrne’s explanation also shows that despite Labour’s slight shift to the left on some issues after it lost power; on the paramount economic issue facing the UK, the economically illiterate policies that Blair engrafted on New Labour continued throughout Ed Miliband’s inept leadership of the party. It is also revealing that New Labour’s voters are so loyal to this dogma that Byrne was elected to parliament even though he is often perceived as a farce.
What Byrne did is summed up nicely in a headline in the Guardian. .
Liam Byrne, chief secretary to the Treasury under Gordon Brown, left a note for his successor that proved to be a gift for the Conservatives
The note said: “I’m afraid there is no money.”
I do not need to explain the political stupidity of leaving such a note or the immaturity it displayed. I do not need to explain how the Conservatives used the note in their political campaigns. Plainly there is no explanation for Byrne’s behavior that reflects well on him. His explanation, however, is important because it reveals that his political stupidity flowed from his economic ignorance. Worse, that economic ignorance is symptomatic of New Labour and continued even under the (politically inept) leadership of a Labour politician (Ed Miliband) who sought to distinguish himself from some of Blair’s policies.
The single most insane post-crisis New Labour policy has been the fervent embrace of economically illiterate and self-destructive austerity. This means that the people New Labour appointed to senior financial leadership positions like Byrne had to be – or pretend to be – unfit for their jobs. In either case – true or feigned ignorance that is causing devastating harm to the public – the official has to be unfit – intellectually or morally (or both).
Here is Byrne’s explanation for his note. As one would expect from someone that would write such a note, his explanation is incoherent, delusional, and intended to excuse his failures.
The final years of Gordon Brown’s government were tough.
His leadership of Britain and the G20 at the London summit stopped the collapse of Lehman Brothers triggering a global depression – an incredible achievement we should never have stopped shouting about. But the recession slashed Treasury tax receipts by over £40bn, forcing us to borrow to keep public services on the go and get Britain back on its feet. And because the deficit was big, the responsible thing to do was draw up a long-term plan to cut spending.
In government, it was my job to craft a plan. As chief secretary, I spent bruising months negotiating £32bn of annual savings to help halve the deficit in just four years and set out in huge detail in our 2010 budget. Of course, the Conservatives attacked us – though it was the timetable they eventually delivered.
Those negotiations were tough and bruising. And so in my final hours of office, I was writing thank-you notes to my incredible team of civil servants. And then I thought I’d write one letter more to my successor. Into my head came the phrase I’d used to negotiate all those massive savings with my colleagues: “I’m afraid there is no money.” I knew my successor’s job was tough. I guess I wanted to offer them a friendly word on their first day in one of government’s hardest jobs by honouring an old tradition that stretched back to Churchill in the 1930s and the Tory chancellor Reginald Maudling, who bounced down the steps of the Treasury in 1964 to tell Jim Callaghan: “Sorry to leave it in such a mess, old cock.”
Yet “the note” was not just stupid. It was offensive. That’s why it has made so many people so angry. And that why it was so wrong to write.
People’s anger – and my party’s anger – at me, will never ever match my anger with myself or my remorse at such a crass mistake. I made it easy for our opponents to bash our economic record by bashing me. And for millions of people and businesses who have had to make such sacrifices over the last five years, there was nothing funny about the national debt when the national task of cutting it has brought them such pain in their everyday life.
Let’s begin with the easy lies to spot and respond to. No, Brown did not save the world from a “global depression.” That was the U.S., led by the Fed and the Treasury.
No, Lehman’s frauds and failures did not cause the global crisis or the UK crises. There were simultaneous fraud epidemics in the U.S., the UK, Ireland, Iceland, France, and Switzerland that all contributed to the crisis. The “made in America” myth of the crisis was one Blair worked hard to craft in 2008, but this is 2015. Everyone in the UK – even Byrne – knows about all the fraud epidemics in the City of London that grew to epic proportions because New Labour dogmas pushed the regulatory race to the bottom that the City “won,” becoming the financial cesspool and fraud epicenter of the world.
Yes, when a Great Recession hits the automatic stabilizers act to (1) reduce the government’s tax receipts and (2) increase its expenditures. As a result the budget deficit grows. That is a good thing essential to a more effective recovery. Byrne – writing in 2015 with the difference in the U.S., UK, and EU recoveries (or non-recoveries) obvious still thinks that “because the deficit was big, the responsible thing to do was draw up a long-term plan to cut spending.” Austerity in response to a Great Recession is the only “responsible thing to do.” Yes, New Labour adopted the TINA mantra (there is no alternative to austerity).
But the UK, unlike the nations of the eurozone, has a sovereign currency. So, (a) when Byrne writes that the fall in tax revenues caused by the Great Recession “forc[ed] us to borrow to keep public services on the go” he demonstrates that he was unfit for the job he held because he does not understand money or its creation in a nation with a sovereign currency. No, such a government does not have to “borrow.” As even Ben Bernanke and Alan Greenspan have admitted, governments with sovereign currencies literally create money with keystrokes on a computer.
Byrne thinks it aids his case that the Tories adopted his austerity plan as their own.
Of course, the Conservatives attacked us [for my austerity plan] – though it was the timetable they eventually delivered.
All the Tories adoption of his austerity plan proves is that New Labour and the Tories share the same fundamental, self-destructive dogmas worshipping austerity.
But Byrne is also dead wrong economically in claiming that “because the deficit was big, the responsible thing to do was draw up a long-term plan to cut spending.” That statement also demonstrates he was unfit for his position because he did not understand one of the most basic aspects of macroeconomics. His plan to cut spending – at a time when the UK was producing far below capacity – was wholly “irresponsible.”
And most of all, Byrne could not have made his epic political blunder – his note – if he had not been ignorant of economics and unfit for the senior position that New Labour appointed him to hold. A government with a sovereign currency cannot run out of money. Byrne’s note: “I’m afraid there is no money” is a nonsensical statement. Similarly, given that he admits that he used that same nonsensical statement repeatedly as his mantra to deny vitally needed public services at a time when deficit spending was a clear win-win that would help the needy and speed the recovery.
In fairness, Byrne’s note was strikingly similar to one of the all-time stupid statements of another official – President Obama. In a C-SPAN interview that caused conservatives to chortle, Obama channeled his inner-Byrne.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits….”
As Paul Krugman has rightly emphasized and criticized, Obama also adopted a line on the campaign trail that implied that the U.S. government was just like a household and should adopt austerity. Obama knew that this was false, but used the line anyway because it proved politically popular even though Obama’s campaign statement made it far harder politically to adopt proper economic policies. Obama’s actions are more cynical than Byrne’s because Byrne appears to be genuinely ignorant while Obama knowingly chose to promote an economic lie. He chose politics over the good of the Nation.
Remember, as comically inept and callow as Byrne is, it was New Labour that chose him to act on behalf of the Nation in one of the most important finance positions in the world. Each of things Byrne was dead wrong about, New Labour (and the Tories and the Lib Dems) also got dead wrong. The SNP does not understand sovereign monetary systems, but it is the only major party in the UK that opposes austerity.