… are doomed to repeat it.
Thus, glossing George Santayana, Paul Krugman signs off his New York Times opinion piece decrying Gids Osborne and the ConDem government as British Fashion Victims. It is devastatating: it is the harsh truth that the Tory pundits in the mainstream London press ignore,it is the formula that Alan Johnson is reaching for:
Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the “brink of bankruptcy.”
What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.
Moreover, it is as a time when it has never been cheaper to borrow:
Britain’s borrowing costs have dropped to the lowest in a generation, falling below those of Germany, Europe’s biggest and strongest economy …
- The odd million or so thrown into the unemployment queues (disproportionately those pesky women, so they can be discounted),
- the poor further disadvantaged at the expense of the super-rich,
- London’s West End made safe for the yuppies because all those with housing benefit have been decanted to Doncaster (though teachers, nurses and others in the servile classes now have a longer commute),
- cancer care and the fripperies of our new, privatised NHS, cut back,
- and all the other small print in Osborne’s package …
… all patently worth it if Britain can now borrow more cheaply than Germany. So, for an alternative view of what the money markets think about £/€ values, try this:
Yes: sterling are rates lower against the surging euro than when this ConDem coalition slithered to power. So, Mr Wu of Shanghai Exports, Sheikh Achmed of the Gulf Oil Consortium, Boris Ripitoff of the Tblisi Mafia Inc … who all know a strengthening currency when they see one, have seen the state of ConDem Britain, blanched and placed deposits elsewhere.
But, no worry. The Great God Rupie has seen his brave new creation, and seen that it is good.
Now here’s a funny thing: we have been here before.
Back in 1970 Edward Heath gathered his shadow cabinet at the Selsdon Park Hotel. Out of that came the batch of free market clutter that was the 1970 Tory manifesto. Within a couple of years, the Heath government abandoned that agenda when it clearly was not working, when unemployment pitching over a million (for the first time in post-War years) was provoking massive social upheavals.
The, in 1980 Thatcher came within a whisker of being defenestrated by her own party because of the radical liberal policies her government adopted. It is worth recalling that the Lady’s not for turning was her last-ditch self-defence, appealing to the grassroots at the 1980 Tory Conference, over the heads of a majority of her own cabinet who were pressing for just such an economic U-turn.
Not too far down the present blue/yellow brick road similar divisions will split the ConDem coalition. The odds are that it will not be a Liberal/Tory faultline either.
As that brilliant Krugman article points out, the ConDems are trapped into the cult fashion of early 2010:
the sudden consensus among Very Serious People that everyone must balance budgets now now now [which] wasn’t based on any kind of careful analysis. It was more like a fad, something everyone professed to believe because that was what the in-crowd was saying.
And it’s a fad that has been fading lately, as evidence has accumulated that the lessons of the past remain relevant, that trying to balance budgets in the face of high unemployment and falling inflation is still a really bad idea. Most notably, the confidence fairy has been exposed as a myth. There have been widespread claims that deficit-cutting actually reduces unemployment because it reassures consumers and businesses; but multiple studies of historical record, including one by the International Monetary Fund, have shown that this claim has no basis in reality.
I’m in with the in-crowd…
A Dobie Gray classic from 1965: those suits were sharp then; but (except for Malcolm’s yearning for his long-lost Lambretta TV175) the whole Mod scene was a pretty transient phenomenon. Harsh realities cam along to overwhelm such superficial fads of dress.
To persist with that analogy for a moment, what’s the difference between a rather nice Vespa GS and the British economy, when either or both are in the control of a desperate thieving Jimmy?
The ever-excellent Stephanie Flanders, in her BBC economics blog, pours a bit another Windermere of water on that just-too-good to be true Daily Mail treatment of the British Wirtschaftswunder:
The yield on a five-year government bond or gilt this week fell below 1.5%, well below Germany’s. That has not happened in the past because (a) British inflation tends to be higher than Germany’s and (b) Germany’s debt is perceived to be safer than Britain’s.
The British 10-year yield is still above Germany’s, for both reasons. Inflation in Britain is running at more than 3% and is expected to stay there for a while. Germany’s inflation is only 1.3%. The gap between them over the shorter time period has disappeared, not because investors have decided that British sovereign debt is safer, but because they reckon the British economy is going to need all the help from the Bank of England that it can get.
Nota bene: The Wirtschaftswunder was as much the product of enlightened American economists and the Marshall Plan (i.e. the spin-off from the developing Cold War) as any indigenous economics.