By John Weeks.

How to read the Guardian Newspaper

There may be some followers of the Real News that consider the London-based Guardian newspaper to occupy a position in the mainstream print media on the centre-left (even more recently than when it was in Manchester and opposed slavery in the 19th century).  Anyone reading Tuesday’s in the Guardian report of George Osborne’s speech at the Conservative Party Conference reached the end of the article should no longer suffer from that misconception.

The UK Chancellor (equivalent of the US Secretary of the Treasury) promised to cut benefits that he explicitly stated would hit the poor the hardest. The Guardian’s Patrick Wintour wrote that the cut in social support to poor families “is designed to cement the Conservatives’ reputation as the party willing to take tough long-term economic decisions”.  Reducing the real incomes of the poor is certainly a “tough” decision for those affected, though why it is for the Chancellor is not obvious.

A bit further along in the article, Mr Wintour tells us that the Chancellor spurned “the temptation to offer a traditional pre-election bribe”, and the specific form of this spurning will be to continue his freeze on public sector wages and salaries.

Further along still in the article, we learn that the announced “hard decision” to cut benefits of the working poor “leaves Osborne still to find a further £9bn in welfare cuts in the first two years of the next parliament”.

And finally, in what I hope was black humour (but was meant literally I fear), the article closes with the sentence, “Osborne also said he would seek to end youth unemployment by giving unemployed 18 to 21-year-olds six months to find work or training before their jobseeker’s allowance would be withdrawn”.

The UK Chancellor with his policy tool of choice.

Getting the Reactionary Message Across

The Guardian’s message is neither subtle nor subliminal.  First, any British government must take as first priority reducing the fiscal deficit and balancing the books (have a look at the same journalist attacking the opposition Leader Ed Miliband for his speech at the Labour Party Conference last week).  Second, it takes a brave politician to cut poverty and inequality-reducing social support.  Third, raising public sector salaries in pace with inflation is nothing but a bribe, to be avoided by responsible politicians.

Fourth, even more cuts are necessary, which is why the Chancellor promises austerity until the end-of-days if this reactionary government is re-elected next year.  And, fifth, unemployment among the 18-21 year olds will be eliminated by terminating their training programmes.

To put the overall message succinctly, the UK fiscal deficit results from excessive “welfare” expenditure, and the people who receive that public largess are idlers and fakers (you may have heard something similar about the poor in the United States).  To quote David Cameron, the Prime Minister and Mr Osborne’s nominal boss, “I want us to end the idea that aged 18 you can leave school, go and leave home, claim unemployment benefit and claim housing benefit”.

Overpaid public sector workers evacuating accident victim

to a hospital full of more overpaid public employees.

As I read The Guardian’s article on the Osborne speech, I thought to myself, does it ever occur to mainstream UK journalists to question the pro-austerity consensus?  To be specific, do they ever ask themselves, why is it important to reduce the fiscal deficit?  And, if the answer is “yes”, do they reflect on what would be the most effective and efficient way to do so?

I hardly need write that these are rhetorical questions — no, the necessity to reduce the deficit is never questioned (“there is no alternative”, the TINA principle).  No challenge is made to the Chancellor’s conference assertion that the only way to achieve that reduction is by expenditure cuts, “And I tell you in all candour that the option of taxing your way out of the deficit no longer exists if it ever did.”

To even a slightly inquiring journalist that sentence should give the game away.  If the problem is that expenditure exceeds revenue, why does cutting expenditure “exist”, but raising taxes does not?  The Chancellor gave the answer to my question in the same speech when he stated, “The problem for Britain is not that it taxes too little – it spends too much”.  Even the most gullible and least reflective journalist should recognize that sentence as purely ideological, a re-phrasing of the guiding principle of the David and George show, “the public sector is too big”.

A bit of simple logic and equally simple economics demonstrates that the deficit reduction arguments are pure ideology.  There is no rational argument for deficit reduction through expenditure cuts.  If for political-ideological reasons this or a Labour government were committed to deficit reduction, increasing public revenue is a considerably more effective way to achieve that reduction.

Deficit Disorder – Curative Measures

Surveys suggest that a very large portion of the British population believes that the fiscal deficit is a pressing problem.  I regret to report that this includes the leadership of the Labour Party.  This belief, which should be viewed as a behavioural disorder, can be successfully treated if it is not ideologically grounded.  In my recent book I provide a guide to overcoming this anti-social malady, which can be summarized as follows.

Recognition that public revenue depends on the health of the economy is the first step to cure fear of deficits.  Public revenue increases when the incomes of companies and employees increase (more income, more to tax).   A recession, even more a massive collapse of the economy as in 2008-2009, reduces company profits, employment and household income, so tax revenue falls.  At the same time payments to the newly unemployed kick in automatically.

Just when revenue falls, expenditure increases.  Both are automatic responses to contraction of the economy.  The UK tax system is “progressive” in the technical sense — when company and household incomes decline, tax revenue declines by more.  This cushioning of household income by lower taxes plus the unemployment payments automatically act to reduce the decline in the economy.  Far from being a source of anxiety, the increasing deficit during 2008-2009 was good for us all.  It kept the economy from seriously tanking.

There is a cliché, when you reach the end of a cul-de-sac (“blind alley”), you get out by turning around and going back the way you came.  So it is with the deficit.  It will begin to disappear when the economy grows, as is occurring now in the United States now.  The Congressional Budget Office predicts a fiscal deficit of less than 4% of GDP by the end of this year, down from almost 10% at the end of 2009 when Barack Obama took office (see Table 20 in the Economic Report of the President 2014).

This decline resulted not from expenditure cuts.  Not withstanding all the hot air in the Congress for budget cuts and debt ceilings, total federal expenditure for 2013 was almost exactly the same was in 2009.  Due to economic growth, revenue increased by over 30% from 2009 to 2013 (see the same ERP 2014, Table 19).

And what about the UK Chancellor’s brave hard decisions to cut expenditure?  They have been a complete failure.  According to both the Bank of England and the Office of National Statistics, public borrowing by the Chancellor through the first half of this year was the same as two years ago.  This failure has a cause, the long stagnation of the economy under the Coalition government.  If the recovery had come sooner — and this was the slowest on record — public borrowing would have declined without cuts.

The same is true for the US recovery.  While it is less pathetic than the UK recovery, failure by the Obama administration to continue the 2009 fiscal stimulus considerably weakened and delayed growth.

And why did the UK recovery come so extraordinarily late?  When the Conservative and Liberal Democrat Coalition came to power in May 2010, private investment was almost 30% below its level at the beginning of 2008, household expenditure was depressed and exports stagnant.  In that context, the Chancellor chose to launch an assault on public expenditure.  Every category of expenditure, private and public, in decline or stagnant, and the economy stagnated as one would expect.  And public borrowing did not decline.

It may be that the Chancellor was not ignorant of the economic consequences of his policies.  The failure of public borrowing to decline provides an on-going justification of continuing the central ideological project of this government, reducing the public sector.

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John Weeks is Professor Emeritus and Senior Researcher at the Centre for Development Policy and Research, and Research on Money and Finance Group at the School of Oriental & African Studies at the University of London.