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The Politics of Austerity

The Politics of Austerity


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Tuesday, 16th June, 2015

In 1930 Britain was suffering from a terrible economic depression. Philip Snowden, the Chancellor of the Exchequer, wrote in his notebook on 14th August that "the trade of the world has come near to collapse and nothing we can do will stop the increase in unemployment." He was growing increasingly concerned about the impact of the increase in public-spending. At a cabinet meeting in January 1931, he estimated that the budget deficit for 1930-31 would be £40 million. Snowden argued that it might be necessary to cut unemployment benefit. Margaret Bondfield looked into this suggestion and claimed that the government could save £6 million a year if they cut benefit rates by 2s. a week and to restrict the benefit rights of married women, seasonal workers and short-time workers.

In March 1931 Ramsay MacDonald, the Labour Party's first prime minister, asked Sir George May, to form a committee to look into Britain's economic problems. The committee included two members that had been nominated from the three main political parties. At the same time, John Maynard Keynes, the chairman of the Economic Advisory Council, published his report on the causes and remedies for the depression. This included an increase in public spending and by curtailing British investment overseas.

Snowden rejected the ideas put forward by Maynard Keynes and this was followed by the resignation of Charles Trevelyan, the Minister of Education. "For some time I have realised that I am very much out of sympathy with the general method of Government policy. In the present disastrous condition of trade it seems to me that the crisis requires big Socialist measures. We ought to be demonstrating to the country the alternatives to economy and protection. Our value as a Government today should be to make people realise that Socialism is that alternative."

When the May Committee produced its report in July, 1931, it forecast a huge budget deficit of £120 million and recommended that the government should reduce its expenditure by £97,000,000, including a £67,000,000 cut in unemployment benefits. On 5th August, Maynard Keynes wrote to MacDonald, describing the May Report as "the most foolish document I ever had the misfortune to read." He argued that the committee's recommendations clearly represented "an effort to make the existing deflation effective by bringing incomes down to the level of prices" and if adopted in isolation, they would result in "a most gross perversion of social justice". Keynes suggested that the best way to deal with the crisis was to leave the Gold Standard and devalue sterling.

Philip Snowden presented his recommendations to the government that included the plan to raise approximately £90 million from increased taxation and to cut expenditure by £99 million. £67 million was to come from unemployment insurance, £12 million from education and the rest from the armed services, roads and a variety of smaller programmes.

The following day MacDonald and Snowden had a private meeting with Neville Chamberlain, Samuel Hoare, Herbert Samuel and Donald MacLean to discuss the plans to cut government expenditure. Chamberlain argued against the increase in taxation and called for further cuts in unemployment benefit. MacDonald also had meetings with trade union leaders, including Walter Citrine and Ernest Bevin. They made it clear they would resist any attempts to put "new burdens on the unemployed".

At another meeting of the Cabinet on 20th August, Arthur Henderson argued that rather do what the bankers wanted, Labour should had over responsibility to the Conservatives and Liberals and leave office as a united party. MacDonald went to see George V about the economic crisis on 23rd August. He warned the King that several Cabinet ministers were likely to resign if he tried to cut unemployment benefit. MacDonald wrote in his diary: "King most friendly and expressed thanks and confidence. I then reported situation and at end I told him that after tonight I might be of no further use, and should resign with the whole Cabinet.... He said that he believed I was the only person who could carry the country through."

On 24th August 1931 Ramsay MacDonald returned to the palace and told the King that he had the Cabinet's resignation in his pocket. The King replied that he hoped that MacDonald "would help in the formation of a National Government." He added that by "remaining at his post, his position and reputation would be much more enhanced than if he surrendered the Government of the country at such a crisis." Eventually, he agreed to form a National Government.

MacDonald returned to 10 Downing Street and called his final Labour Cabinet. He told them that he had changed his mind about resigning and that he agreed to form a National Government. When the meeting was over, he asked Philip Snowden, Jimmy Thomas and John Sankey to stay behind and invited them to join the new government. All three agreed and they kept their old jobs. Other appointments included Stanley Baldwin (Lord President of the Council), Neville Chamberlain (Health), Samuel Hoare (Secretary of State for India), Herbert Samuel (Home Office), Philip Cunliffe-Lister (Board of Trade) and Lord Reading (Foreign Office).

On 8th September 1931, the National Government's programme of £70 million economy programme was debated in the House of Commons. This included a £13 million cut in unemployment benefit. The cuts in public expenditure did not satisfy the markets. The withdrawals of gold and foreign exchange continued. On September 16th, the Bank of England lost £5 million; on the 17th, £10 million; and on the 18th, nearly £18 million. On the 20th September, the Cabinet agreed to leave the Gold Standard, something that John Maynard Keynes had advised the government to do on 5th August.

The Great Depression continued in Britain. Maynard Keynes took his ideas to the United States. President Herbert Hoover economic policies were similar to those of Ramsay MacDonald. In 1932 the national deficit was nearly $3,000,000,000 and the unemployment-rate was 23.6%. When President Franklin D. Roosevelt took office in 1933 his Treasury Secretary Henry Morgenthau, and aides within the Treasury Department favored an approach that sought to balance the federal budget. But other advisers in the President's inner circle, including Harry Hopkins, Marriner Eccles and Henry Wallace, had accepted the recent theories of Maynard Keynes, who argued that technically advanced economies would need permanent budget deficits or other measures (such as redistribution of income away from the wealthy) to stimulate consumption of goods and to maintain full employment. It was argued that it was the attempt to balance the budget that was causing the recession.

President Roosevelt was eventually convinced by these arguments and he recognized the need for increased government expenditures to put people back to work. An important part of his New Deal programme was increased spending on government expenditures for relief and work schemes. From 1933 to 1937, unemployment was reduced from 25% to 14%.

Roosevelt was much attacked by his political opponents for not concentrating on reducing the national deficit. However, as Roosevelt explained in a speech in 1936: "To balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people. To do so we should either have had to make a capital levy that would have been confiscatory, or we should have had to set our face against human suffering with callous indifference. When Americans suffered, we refused to pass by on the other side. Humanity came first."

Unfortunately, the British government followed the failed policies of Hoover rather than the successful measures of Roosevelt. The governments of Ramsay MacDonald, Stanley Baldwin and Neville Chamberlain continued to try and balance the budget. Something of course that is very difficult to do with high spending on unemployment benefits. This of course changed with the outbreak of the Second World War. It now became necessary to use deficit spending to achieve victory.

One of the main reasons why the British public voted in the way that it did in the 1945 General Election was because it remembered the way the Conservative leaders had behaved in the 1930s. Clement Attlee was the first prime minister in British history to accept the economic theories of John Maynard Keynes. At the beginning of the war the National Debt was 110% of GDP. By 1945 it was 200% but still the government did not cut back and by 1947 it was 238% of GDP. With this increased spending the government was able to build more than a million homes, 80% of which were council houses. They were also able to establish the National Health Service. However, full-employment meant that the government was gradually able to reduce the national debt.

In the last General Election the three major parties supported the policy of austerity. Paul Krugman, who was awarded the Nobel Memorial Prize in Economic Sciences in 2008, pointed out during the election campaign: "Cameron is campaigning largely on a spurious claim to have ‘rescued’ the British economy – and promising, if he stays in power, to continue making substantial cuts in the years ahead. Labour, sad to say, are echoing that position. So both major parties are in effect promising a new round of austerity that might well hold back a recovery that has, so far, come nowhere near to making up the ground lost during the recession and the initial phase of austerity.”

Krugman went on to argue that the government has falsely sought to claim that the economy’s recovery was due to austerity when in fact recovery only began once the coalition adopted a less aggressive approach to deficit reduction in 2012. Krugman was highly critical of the Labour Party policy during the election. Although the shadow chancellor, Ed Balls, predicted in 2010 that austerity would lead to lower growth and a higher deficit than the government was expecting, they gradually accepted the coalition’s narrative and it was left to the Green Party and the SNP.

Krugman quotes John Maynard Keynes as saying in 1937: “The boom, not the slump, is the right time for austerity at the Treasury.” He goes on to argue that " I often encounter people on both the left and the right who imagine that austerity policies were what the textbook said you should do – that those of us who protested against the turn to austerity were staking out some kind of heterodox, radical position. But the truth is that mainstream, textbook economics not only justified the initial round of post-crisis stimulus, but said that this stimulus should continue until economies had recovered. What we got instead, however, was a hard right turn in elite opinion, away from concerns about unemployment and toward a focus on slashing deficits, mainly with spending cuts. Why?"

Krugman suggests one of the major problems is the electorate do not have a very good understanding of economics. "Part of the answer is that politicians were catering to a public that doesn’t understand the rationale for deficit spending, that tends to think of the government budget via analogies with family finances."

Krugman is not alone in criticising the economic policies of the three major parties. The Centre for Macroeconomics polled 50 economists, asking them whether they agreed that the government’s deficit-reduction strategy had had a positive impact on growth and employment. One-third disagreed and a further third strongly disagreed. Only 15% agreed, with none strongly agreeing.

The news that Jeremy Corbyn obtained the 35 nominations required to stand for the leadership of the Labour Party is to be welcomed. He is unlikely to win but at least we will get a debate over the wisdom of austerity and will add to the public understanding of the economic alternatives.

Was Henry FitzRoy, the illegitimate son of Henry VIII, murdered? (31st May, 2015)

The long history of the Daily Mail campaigning against the interests of working people (7th May, 2015)

Nigel Farage would have been hung, drawn and quartered if he lived during the reign of Henry VIII (5th May, 2015)

Was social mobility greater under Henry VIII than it is under David Cameron? (29th April, 2015)

Why it is important to study the life and death of Margaret Cheyney in the history classroom (15th April, 2015)

Is Sir Thomas More one of the 10 worst Britons in History? (6th March, 2015)

Was Henry VIII as bad as Adolf Hitler and Joseph Stalin? (12th February, 2015)

The History of Freedom of Speech (13th January, 2015)

The Christmas Truce Football Game in 1914 (24th December, 2014)

The Anglocentric and Sexist misrepresentation of historical facts in The Imitation Game (2nd December, 2014)

The Secret Files of James Jesus Angleton (12th November, 2014)

Ben Bradlee and the Death of Mary Pinchot Meyer (29th October, 2014)

Yuri Nosenko and the Warren Report (15th October, 2014)

The KGB and Martin Luther King (2nd October, 2014)

The Death of Tomás Harris (24th September, 2014)

Simulations in the Classroom (1st September, 2014)

The KGB and the JFK Assassination (21st August, 2014)

West Ham United and the First World War (4th August, 2014)

The First World War and the War Propaganda Bureau (28th July, 2014)

Interpretations in History (8th July, 2014)

Alger Hiss was not framed by the FBI (17th June, 2014)

Google, Bing and Operation Mockingbird: Part 2 (14th June, 2014)

Google, Bing and Operation Mockingbird: The CIA and Search-Engine Results (10th June, 2014)

The Student as Teacher (7th June, 2014)

Is Wikipedia under the control of political extremists? (23rd May, 2014)

Why MI5 did not want you to know about Ernest Holloway Oldham (6th May, 2014)

The Strange Death of Lev Sedov (16th April, 2014)

Why we will never discover who killed John F. Kennedy (27th March, 2014)

The KGB planned to groom Michael Straight to become President of the United States (20th March, 2014)

The Allied Plot to Kill Lenin (7th March, 2014)

Was Rasputin murdered by MI6? (24th February 2014)

Winston Churchill and Chemical Weapons (11th February, 2014)

Pete Seeger and the Media (1st February 2014)

Should history teachers use Blackadder in the classroom? (15th January 2014)

Why did the intelligence services murder Dr. Stephen Ward? (8th January 2014)

Solomon Northup and 12 Years a Slave (4th January 2014)

The Angel of Auschwitz (6th December 2013)

The Death of John F. Kennedy (23rd November 2013)

Adolf Hitler and Women (22nd November 2013)

New Evidence in the Geli Raubal Case (10th November 2013)

Murder Cases in the Classroom (6th November 2013)

Major Truman Smith and the Funding of Adolf Hitler (4th November 2013)

Unity Mitford and Adolf Hitler (30th October 2013)

Claud Cockburn and his fight against Appeasement (26th October 2013)

The Strange Case of William Wiseman (21st October 2013)

Robert Vansittart's Spy Network (17th October 2013)

British Newspaper Reporting of Appeasement and Nazi Germany (14th October 2013)

Paul Dacre, The Daily Mail and Fascism (12th October 2013)

Wallis Simpson and Nazi Germany (11th October 2013)

The Activities of MI5 (9th October 2013)

The Right Club and the Second World War (6th October 2013)

What did Paul Dacre's father do in the war? (4th October 2013)

Ralph Miliband and Lord Rothermere (2nd October 2013)


The Politics of Austerity, Occupy and the 2012 Elections

AT THIS MOMENT, the central issue facing our society is how to respond to the deepest crisis of global capitalism since the 1930s. Unfortunately, we won’t be hearing a substantive debate about this in the 2012 elections. The Democratic and Republican parties both favor austerity — in short, making working-class people pay to bail out the corporations and get capitalism back on its feet.

Austerity means sacrificing the wealth and the rights of the working class (i.e. jobs, wages, pensions, housing and public services) in order to preserve the wealth and the rights of banks, large corporations, and those few families who live off profits and interest (i.e. capital).

More than that, austerity asks us to lower our hopes and expectations of a decent life for our families and communities. And it seeks to transform political and economic institutions in order to be sure that workers and governments will remain “disciplined” into the future.

Those of us who would prioritize human needs and democracy over capitalist profit and corporate power do not have a political party capable of mounting a serious challenge to austerity in the electoral arena. Yet the dramatic emergence of the Occupy movement proves that there is widespread opposition to austerity, as well as deep frustration with the narrow “choices” offered by our legislative and electoral system.

The Occupy movement transformed the political landscape. Young people rejected rising inequality and the bipartisan consensus on bailouts for bankers, proclaiming “We are the 99%.” And Occupiers have refused to be coopted by the Democratic Party or confined by the boundaries of conventional legislative politics. Occupy struck a powerful chord, bringing hope that inequality and corporate power can be checked by a rising mass movement.

Along with the Occupy movement, we’ve seen the magnificent actions of young immigrants, proclaiming themselves “Undocumented, Unafraid and Unapologetic” in the face of the Obama administration’s escalation of deportations beyond the horrible levels that occurred under George W. Bush.

The racist murder of Trayvon Martin, the unarmed African-American teenager, by a vigilante “neighborhood watch coordinator” who wasn’t immediately arrested, has created a mass outpouring of anger and demands for justice, not only in Florida but across the United States and even internationally.

As November looms closer, however, activists in unions, Occupy and social justice movements will face intense pressure to devote their collective political energies to the reelection of president Obama and to Democratic Party electoral campaigns.

In this pamphlet, we argue against falling in behind the Democrats. As socialists, we suggest that the main task facing Occupiers, union militants and social justice activists is not to elect Democrats but rather to sustain and intensify Occupy’s bold challenge to the bi-partisan consensus behind austerity.

We are not going to focus here on how individuals choose to vote in November. We are concerned, rather, with how activists in a wide range of movements can most effectively channel their energies to challenge austerity and the corporate-dominated two-party system.

Democracy: Struggle and Limits

“I DON’T WANT everybody to vote. Elections are not won by a majority of people. They never have been from the beginning of our country, and they are not now. As a matter of fact, our leverage in the elections quite candidly goes up as the voting populace goes down.” Those are the words of wisdom from Paul Weyrich, founder of conservative think tanks such as the Heritage Foundation and American Legislative Exchange Council (ALEC).

In highly autocratic countries, when elections occur they are often hijacked — or are basically staged mobilizations to legitimize a pre-determined result. In the United States, the formalities of democracy may be held sacred, but the substance is crumbling and even the voting franchise for millions of people is under attack. Democratic rights under capitalism are limited and always a product of struggle — they expanded under the impact of the labor and Black and women’s liberation movements, and they’re threatened now under the corporate austerity drive.

We believe it is possible for the movements to build on the success of Occupy, the heroism of immigrant youth and the rage over Trayvon Martin’s murder. It’s an opportunity to build mass actions which go beyond symbolism to directly and materially disrupt the project of austerity — and to develop forms of organization with the capacity to put the corporations and the far right on the defensive, whatever the outcome of the elections.

In our view, this will require not only building the Occupy movement but also taking its spirit and approach, and the audacity of immigrant youth who are coming out of the shadows, into the multitude of organizations, networks and communities that collectively provide a base for the radical transformation of American politics.

The Context in the 2012 Election

The corporate consensus for austerity (“belt tightening”) has moved the so-called “political mainstream” sharply rightward. At the same time, blatant lies and racist vitriol coming from the Republican Right will frighten many people, including on the left, who will likely back the President in the belief that it is necessary to defeat a racist wave that smacks of neo-fascism.

By the middle of April Mitt Romney had put a stranglehold on the Republican nomination. Will he now jettison much of his party’s extreme right-wing baggage, and move in tandem with President Obama toward “the center” (i.e. towards each other) for the general election? Although that’s what happened many times in the past, we don’t see that as likely this time around.

In 1996 — the last time a Democratic president ran for reelection — Bill Clinton shored up his corporate centrist image by passing “welfare reform” and the Effective Death Penalty Act. Republican nominee Bob Dole tried unsuccessfully to cast himself as the true corporate centrist. The result was that the positions of the two candidates were difficult to distinguish by Election Day. Similarly, despite their divergent paths after the elections, Al Gore and George W. Bush appeared so close to each other in 2000 that Ralph Nader’s left-wing third party candidacy captured a great deal of energy and 3% of the national vote (historic in the modern era).

Tea Party: Tempest and Gridlock

THE TEA PARTY at its inception had the appearance of an angry grassroots insurgency against big-government overreach, excessive spending and intrusion into ordinary people’s lives. While some of that posturing struck a responsive chord, it soon emerged that the Tea Party was essentially another of those “Astroturf movements” — funded by the Koch brothers and other corporate powers to protect themselves from the deadly dangers of taxation, regulation, health care reform and restrictions on their sacred rights to pollute and exploit.

This year may be different. While Romney is likely to modify some of his social views in order to counter the widening gender gap, there is one question on which he will have little room to maneuver: race. President Obama’s commanding 2008 victory was a product of a generalized revulsion toward George W. Bush, a negative referendum on the state of the economy and enthusiasm around the possibility of electing the first African-American president. However, these conjunctural factors masked a deeper trend.

Demographic changes, Latino immigration in particular, and urbanization in states such as North Carolina and Virginia, is providing the Democratic Party with a growing structural advantage. And the Latino share of eligible voters has increased significantly since 2008. By some estimates the 2012 Latino vote will be 26% greater than it was four years ago. While much of this growth appears in safe states for one party or the other — California and Texas — much also appears in the swing states of Arizona, New Mexico and Colorado. Even in North Carolina, the still small Latino population has grown by 18% since 2008.

So far the Republican Party has proven slow to adapt to the changing electorate. Rather than support the pro-business guest worker program championed by both Presidents Bush and Obama, the Republican candidates have engaged in explicitly racist immigrant-bashing and have associated themselves with horrific legislation in Arizona, Georgia, Alabama and Mississippi. Mainstream commentators have noted the extent to which the GOP has become whiter, more southern, more male.

Party speeches have become increasingly racist. The use of “socialism” as an anti-Obama epithet, something Republicans had rarely used against Democrats since the height of the Cold War, is an appeal more to white racism than to anti-Marxist fears. Republicans use the word “socialism” to appeal to white stereotypes of African Americans, whom they envision as wanting to live on government handouts funded by white taxpayers.

Republican policies and rhetoric risk making Republican politicians uncompetitive among Latino voters. A recent Fox News poll found Obama beating Romney among likely Latino voters by a margin of 70-14. If Romney attempts to close that margin by flip flopping on immigration reform and the DREAM Act, he will alienate his angry white voter base and possibly reduce Republican turnout in November. His most likely course of action, therefore, will be to double-down on covert appeals to white racism in the hopes of revving up white male turnout. Whether this might succeed in winning Romney the presidency is difficult to predict. However, this election will be as vicious and racist as any in recent times.

The despicable slurs and personal attacks on President Obama will actually re-energize many of his disappointed supporters to support him once again. Black voters, in particular, will also see the fight to reelect the first African-American president as a defense against the assaults on their community — including the attempts to suppress their vote. It’s important to recognize and respect this sentiment, but also to clearly understand that president Obama, every bit as much as Mitt Romney, is a candidate of the Wall Street bankers, hedge funds and corporate capital.

Occupy’s Voice

Last September Occupy Wall Street (OWS) began with the march of a few thousand to New York’s Financial District and the overnight occupation by a couple hundred people of a small private park owned by a commercial real estate company. The following Saturday, as protestors marched uptown, police beat them, pepper spraying some of the young women, and arresting eighty. As the direct result of this unprovoked violence, hundred went to the park to find out what was happening, staying to take part of the General Assemblies and the flowering of working groups around specific issues. The following Saturday, 5,000 marched on the Brooklyn Bridge to protest police repression. The police seemed to be directing them on to the road, but actually trapped and arrested 700.

Popular disgust with the NYPD’s mass arrests at Brooklyn Bridge pushed city unions to support OWS. This was particularly true for the Transport Workers Union whose members came to the park from the first day of the occupation. Their contract was about to expire and management was demanding another round of concessions. But also present were striking telecommunication workers, healthcare workers and construction workers. By early October they organized a support march, and students from some of the largest New York campuses organized a walkout of over 2,000 and joined.

The media seemed to mock the occupiers because they lacked a list of demands. In fact, their refusal to restrict themselves to such a list challenged the neoliberal agenda. They demanded the right to create a public and open community where fundamental issues about how we take care of ourselves are discussed. They challenged the rhetoric of austerity by proclaiming “We are the 99%.”

OWS dramatically turned the spotlight onto the reason for the economic crisis: The drive to restructure government on the back of its workforce and strip communities of services and resources. It is not that the 99% has been living beyond our means, but that the 1% has used its power to increase economic and political dominance.

The Occupy movement spread across the country as occupations mushroomed in cities, towns and colleges last fall, seeing itself as part of a response to the death culture of neoliberalism. Within six weeks more than 200 Occupies carried out actions on October 15, linking up with the international day of action that “indignados” had initiated in Spain and Greece. As demonstrators in Egypt returned to Tahrir Square to oppose the tricks of the military regime and its repression, defending their revolutionary process, Occupy identified with their struggle.

Occupy’s message also resonated beyond public parks and college campuses. Groups sprang up in poor urban neighborhoods throughout the country in a movement to “Occupy the Hood,” and in mainly immigrant communities to “Occupy the Barrio” or “Decolonize the Barrio.”

In contrast to the often largely white park occupations, Occupy the Hood and Decolonize the Barrio has successfully mobilized in communities of color to fight back against an epidemic of unjust foreclosures and police brutality. These movements have bought many things to the table, including hip-hop picket lines, health clinics, and working towards self-care for communities.

Occupy Wall Street didn’t emerge from thin air. It was preceded internationally by the general strikes in Greece and the Arab Spring. Even its first tactic of occupying space was launched in the United States by the 2008-09 struggles of University of California students, who opposed the tripling of fees over the past decade.

In February 2011, a mass occupation broke out in Madison, Wisconsin in response to the impending imposition of draconian legislation by the governor and state legislature. AFSCME’s lobby day was transformed when hundreds of students and workers from the University of Wisconsin, accompanied by public school teachers, decided to spend the night in the state Capitol, and then stayed on.

Attacking Women’s Rights

STATE LEGISLATURES ARE on a rampage to pass laws restricting women’s ability to control their reproductive lives — each one more outrageous than the last. Over the last two years a wave of health-related laws affecting women have been introduced in various states. Two years ago 950 bills reducing women’ access to reproductive rights in one way or another, and 89 were enacted. Last year 1,100 were introduced and a whooping 135 passing.

These range from limiting comprehensive sex education classes in schools and cutting funding for contraceptives to blocking women’s right to abortion — mandating procedures that are costly, unnecessary and humiliating, such as waiting periods, ultrasounds and even physical invasion of the woman’s body. In the case of Texas, the ultrasound requirement for all women seeking abortions means, for a first trimester procedure, a probe inserted into the woman’s vagina. No wonder it was labeled the state “rape law”!

Once in the building they needed to feed and organize themselves — and they did, even receiving pizzas ordered in by supporters as far away as Tahrir Square! They set up work stations to meet their daily needs for information, food, health and child care. The Capitol occupation, lasting roughly six weeks, showed the potential for self-organization and the use of space to express a vision for a different society.

A few months later, as Mayor Bloomberg (the 12th richest man in the United States!) launched another round of austerity in New York City, a network of unions, community organizations and political groups started an occupation near City Hall called “Bloombergville.” Becoming a focal point of opposition to the cuts, in many of its organizing methods it prefigured OWS, but was unable to launch a larger movement and packed up once the budget was adopted.

By the spring of 2012 most Occupations have left the parks. Some, like OWS, were violently repressed. Others, like Occupy Chicago, were prevented by the police from ever establishing a camp. Many, in the face of the winter and under attack from city officials, chose to leave for indoor spaces where working groups and General Assemblies continue to meet.

Occupy is not just a physical space, but also an approach to community life. Most Occupies are involved in organizing teach-ins against austerity, standing with people whose homes face foreclosure, mike-checking the corporate elite at their business luncheons, defending community programs and supporting workers’ struggles. Some of these actions involve tensions between unions and organizations tied to the Democratic Party — as to be expected with a model that is non-hierarchical and not inclined toward compromise.

The Occupy movement is driven by a notion of direct democracy, transparency and a notion of a society not based on profit but on meeting people’s diverse needs. Above all, the Occupy movement has altered the political discussion — an important and lasting contribution in and of itself.

2012 and the Politics of War

SOME WARMONGERS JUST can’t get enough. The Republican candidates (except for Ron Paul, who’s a separate case) are braying for war with Iran. Senator John McCain demanded a doubleheader — bomb Syria too. President Obama, in his March 6 press conference, chided his critics for “popping off” with loose war talk.

Among the great majority of the U.S. population, the president undoubtedly wins that particular argument. Since 2001 the United States has undertaken military adventures twice — in Afghanistan for the supposed reason of preventing “another 9/11,” and in Iraq on the lying pretext of eliminating Saddam Hussein’s WMDs. These were both imperialist and criminal wars — win, lose or draw — but also that they have been defeats, even if neither Democrats, Republicans or the corporate media will explicitly say so.

The Unions and Austerity

Unions, with all their flaws, remain a critical arena of working-class collective capacity — a perennial thorn in the side of capital, and a potential resource for resisting or reversing austerity.

However, labor leaders’ continued commitment to Democratic Party electoral efforts above all threatens to squander the potential for unions to serve as centers of working-class resistance.

Every election year, unions spend millions on political contributions, direct mail and advertising, while enlisting their staff and rank-and-file activists for nightly phone banks, weekend door-belling, and worksite leafleting.

Unions and their PACS spent an estimated $400 million in 2008 on campaign contributions and independent expenditures, plus many thousands of paid and volunteer hours, aimed mainly at electing Democrats.

The Democrats took the White House and the Congress. But instead of the Employee Free Choice Act (labor’s top legislative priority in 2009) and the $9.50 minimum wage that Obama trumpeted during his campaign, we ended up with a pro-corporate health care reform and more “free trade” agreements.

Most importantly, perhaps, we got Obama’s centrist version of austerity, complete with a wage-slashing auto bailout, attacks on teacher unions, bank bailouts that left working-class debtors in the lurch, a Deficit Commission and an overdose of rhetoric about shared sacrifice. It is true that Republicans have taken to union-busting as a general principle. For them, the economic crisis presents an opportunity to wipe out what remains of unions’ institutional capacity and legal rights.

Centrists, including Obama, have chosen a different path, working to incorporate union leaders as partners in implementing austerity. The objective here is to minimize opposition to the core project of austerity while holding the Democratic electoral coalition together.

Union leaders have focused their energies on beating back the most direct (usually Republican) attacks on bargaining and organizing rights. This resistance to direct attacks on unions as institutions has, however, gone hand-in-hand with rhetorical and material concessions to the larger project of austerity.

In this respect, the role of President Obama and the Democratic Party has been crucial. Playing the “good cops” to the Republican “bad cops,” the Democrats have been able to present their version of austerity as the only reasonable alternative for frightened union leaders.

Obama has been explicit in calling upon union leaders to discipline their members to the requirements of austerity. In doing so, he has even drawn strength from the divisive rhetoric of the far right.

Economic Dictatorship

IN ORDER TO bail out the banks, governments in Europe have borrowed from these very same banks, essentially paying higher interest rates on new loans to pay off the bad loans that got the banks into trouble. In order to qualify for these new loans at supposedly sustainable rates, the governments are required to impose austerity measures never seen before. Cuts in pay and pensions range from 20-30% with more coming union contracts are shredded and labor laws “liberalized” unemployment soars, affecting upwards of one-quarter to one-third of work forces — so that half the youth in Spain, for example, are unemployed.

Realizing that elected officials are unable or unwilling to follow through with these drastic measures — and that they will be blamed for the inevitable downturn in the economic fortunes of these countries — the European Central Bank and International Monetary Fund consort to demand that parliaments appoint “technocrats,” who will be seen as neutral experts willing to do what no politician would. These unelected experts are, in fact, bankers from the highest echelon including the ECB itself in the case of the prime ministers of Greece and Italy. The finance minister of Spain is the former head of the European division of the failed Lehman Brothers investment bank.

The unelected “Technocracy” heading these governments represents the next level, aimed at restoring profit margins for the bankers who hold all the cards, at the expense of working-class taxpayers whose institutions like traditional unions remain on the defensive and divided. Visible mass discontent still lacks a clear, unified strategy and the confidence needed to challenge the new economic dictatorship.

At a 2011 town hall meeting in Deborah, Iowa, Obama argued that unionized public sector workers must accept concessions in order to avoid a “natural backlash” by those who have seen their wages and pensions slashed in recent years.[1]

Referring to teachers’ unions, Obama said “If there’s a feeling that unions aren’t partners in reform processes in things like education, then they’re going to end up being an easy target.” Meanwhile, Obama’s Secretary of Education Arne Duncan, and his former Chief of Staff, Chicago Mayor Rahm Emanuel, have made attacks on teachers unions the centerpiece of their education reforms.[2]

Like every “good cop,” Obama needs a bad cop, in this case the Republican Right. Teachers have not been alone in feeling the pressure. Public workers and services have suffered mightily in the crisis. Over the last two years, federal workers have given back $60 billion through pay freezes imposed by the Democrat in the White House, and a change to federal pensions passed by the Democrat-controlled Senate will cut new hires’ retirement pay by 41%.[3]

From January 2009 to December 2011, the number of state and local government employees declined by 583,000, according to Bureau of Labor Statistics data. From 2008 to 2011 local school districts alone cut 278,000 jobs.[4]

The Obama Administration’s bailout of GM and Chrysler applied the centrist approach to austerity in the private sector. As a condition of the bailout, the Obama Administration mandated that unionized auto workers accept “parity” in wages and benefits with non-union auto workers.

In the end, the union agreed to a 50% wage cut for all new hires and replaced their defined benefit pension with a 401K. Further, the UAW allowed General Motors and Chrysler to reduce their previous commitments for payments toward retiree health care, which was already underfunded. As a consequence, the Department of the Treasury ordered fund trustees to immediately cut retiree health care benefits, which they did. The UAW also gave up its right to strike in 2011 contract negotiations.

Ironically, the auto bailout is trumpeted as evidence of Obama’s support for workers and unions. By playing the “good cops” the Democrats have arguably been more effective at implementing austerity than the clumsy, over-reaching and increasingly rabid Republican right.

Yes, there are differences between Democrats and Republicans when it comes to issues of concern to workers. The point we want to emphasize is that Obama and the Democratic establishment are fully committed to the core project of austerity, and using fear of the Republican Right to divide workers and rally union support.

Should workers put their energy behind the “good cop” of austerity in the 2012 elections? We think it would be a better bet to develop effective extra-electoral tools to defend unions’ historic achievements and challenge the bipartisan consensus around austerity.

In our view, the moment is ripe for the rise of an independent political movement to challenge austerity. In fact, the most important missing ingredient in the construction of such a movement right now is probably a full commitment from organized labor. Subordinating union political energy and “messaging” to Democratic electoral campaigns will make such a commitment impossible. Unions cannot hope to build on the Occupy movement’s successful efforts to “change the conversation” while campaigning for pro-austerity politicians.

The Occupy movement resonated so strongly with large sections of the American people because it gave expression to the widespread anti-austerity sentiment that has no home in the capitalist parties. The big question for union militants now is how to direct the organizational capacities of the labor movement toward mass mobilization for direct action against austerity, and for constructing a new, democratic, independent, anti-capitalist, political force that embodies the sentiments and the spirit aroused by the uprisings in Ohio and Wisconsin and the Occupy movement.

Around the country, many union members (and some unions) have begun building bottom-up coalitions, using direct action, and cooperating with Occupiers in locally-focused but nationally linked campaigns against home foreclosures, school privatization, and anti-democratic legislation intended to advance austerity.[5]

The Occupy movement, driven by a small cadre of thousands of dedicated activists, was able to change the national conversation by daring to challenge Wall Street directly. We have no doubt that sustained labor movement initiatives along these lines could radically alter the political map of the country to an even greater degree.

Beginning Resistance

After accepting round after round of concessions, last year working people began to resist. When Wisconsin working people’s month-long action didn’t stop Governor Walker’s legislation, they turned to recalling legislators, successfully replacing two. Now they have gathered a million signatures to recall Walker, and the governor finds himself on the fundraising trail.

A number of other Midwest governors had the same agenda. Ohio’s Governor John Kasich pushed a through a similar bill that limited about 400,000 public sector workers from collective bargaining, collecting dues or striking. Demonstrators then gathered 1.29 million signatures to put Senate Bill 5 on the November 2011 ballot, where it went down to defeat. In Michigan Governor Rick Snyder rushed through Public Act 4, the Emergency Manager bill. More than 225,000 have signed a petition demanding that the law be submitted as a referendum issue on the 2012 ballot.

In all three cases demonstrations and rallies preceded the work on recall and referendum. Many saw the campaigns as a chance to fan out and talk to coworkers, relatives and neighbors about the vicious legislation. They were determined to refute the myth that they were lazy and inefficient workers.

Workers and Occupy Fight Back

Summer and early fall 2011 saw a number of other workers organizing strategic campaigns to win decent contracts in the face of the employers’ demands for more givebacks. First, Verizon workers set up mobile pickets that followed managers functioning as scabs and organized noisy picket lines at wireless stores, turning customers and suppliers away. Although the two-week strike was cut short, the company accumulated a backlog of 100,000 orders.

The most dramatic case was the longshore workers in Longview, Washington. Last summer they began protesting the opening of a state-of-the-art grain terminal whose managers refused to negotiate a contract with the union. By early September they escalated their tactics and massed on the railroad tracks to physically block trains, opening the hoppers and dumping out the grain. The next day ports in nearby Tacoma and Seattle were shut down by wildcats as the longshore workers headed to Longview, where they invaded the terminal. Of course they were met by police, who arrested hundreds, but neither the arrests nor a temporary restraining order banning picketing that blocked the trains convinced the International Longshore and Warehouse Union to back down.

The Capitalist State

OUR SOCIALIST VISION for changing society begins from the notion that “the emancipation of the working class must be the act of the working class itself.” That argument, advanced by Marx and Engels long ago in The Communist Manifesto, resonates with the language of today’s militant activists: “We are the 99%,” and “We are the leaders we have been waiting for.”

Whatever political label one attaches to these ideas, they reflect the shared conclusion that the overwhelming majority has an interest and a need to deepen democracy. In our view, deepening democracy is about much more than changing the personnel who run the government or reining in corporate influence through political spending.

Ultimately, deepening democracy requires challenging the underlying foundation of corporate power — the private ownership of productive resources. Let’s be blunt: capitalism gives corporate CEOs and investment bankers’ dictatorial powers over the fate of our government, our workplaces, and our communities. No matter how much of our sweat and blood went into producing it, they own the capital, and they make the decisions about what to do with it.

Yet it was the Occupy movement — initiated by a handful in a small park near Wall Street — that captured mainstream media with its message of “We are the 99%.” The movement has now successfully defended people’s homes against eviction, marched and rallied in defense of city services, called for the cancellation of a trillion dollars’ worth of student debt and supported workers’ struggles ranging from the locked-out Sotheby workers in New York City to the Longview struggle.

To be sure, there have been tensions in the alliances that formed between Occupiers and the unions, and of course the resistance itself is uneven. Anti-immigrant, anti-women’s reproductive rights and anti-union legislation such as Indiana’s right-to-work-for-less bill continue to be passed. Politicians continue to rant against the rights and dignity of poor people, working people, gays and lesbians, immigrants and women. Employers continue their aggressive tactics, including locking out workers. Unions have continued to sell the need for concessions to their members, and members have reluctantly gone along.

Resistance has not stopped the attack. Yet the new-found energy is amazing. We are beginning to fight and realize that turning around a country based on inequality and injustice is not an easy task. It’s too easy to believe we aren’t having much of an impact. Two months before the scheduled G8 meeting in Chicago, President Obama announced the meeting would be transferred to Camp David. That is a direct result of the movement’s plans to be in Chicago.

Occupy the Ballot? What Are the Options?

FOUR YEARS AGO, tens of millions of people of all races and nationalities were delighted to vote for Barack Obama for president. They knew it would be an historic blow against racist ideology for an African American to be elected to the presidency.

Many also believed that Obama’s calls for “hope and change” meant that he would rally the American people for reforms such as a higher minimum wage, more rights for workers, a jobs program, the development of renewable energy, a prompt end to the wars in Iraq and Afghanistan, the closure of Guantanamo, and an end to the brutal raids and deportations of immigrants. In the end, none of this happened.

As a movement of resistance to austerity, social justice activists have a better sense of who are our allies and who opposes us. We have begun to discuss a range of collective tactics and decide which to use on various occasions. We have shown creativity in our signs and democracy in our decision-making. So we are further than we were a year ago because we have rejected the politicians’ rhetoric of divide and rule, because we have built a broad unity and because we realize that the way to be taken seriously is to disrupt business as usual. As a sign in Wisconsin summarized it, “Walk like an Egyptian.”


Contents

Austerity measures are typically pursued if there is a threat that a government cannot honour its debt obligations. This may occur when a government has borrowed in currencies that it has no right to issue, for example a South American country that borrows in US Dollars. It may also occur if a country uses the currency of an independent central bank that is legally restricted from buying government debt, for example in the Eurozone.

In such a situation, banks and investors may lose confidence in a government's ability or willingness to pay, and either refuse to roll over existing debts, or demand extremely high interest rates. International financial institutions such as the International Monetary Fund (IMF) may demand austerity measures as part of Structural Adjustment Programmes when acting as lender of last resort.

Austerity policies may also appeal to the wealthier class of creditors, who prefer low inflation and the higher probability of payback on their government securities by less profligate governments. [11] More recently austerity has been pursued after governments became highly indebted by assuming private debts following banking crises. (This occurred after Ireland assumed the debts of its private banking sector during the European debt crisis. This rescue of the private sector resulted in calls to cut back the profligacy of the public sector.) [12]

According to Mark Blyth, the concept of austerity emerged in the 20th century, when large states acquired sizable budgets. However, Blyth argues that the theories and sensibilities about the role of the state and capitalist markets that underline austerity emerged from the 17th century onwards. Austerity is grounded in liberal economics' view of the state and sovereign debt as deeply problematic. Blyth traces the discourse of austerity back to John Locke's theory of private property and derivative theory of the state, David Hume's ideas about money and the virtue of merchants, and Adam Smith's theories on economic growth and taxes. On the basis of classic liberal ideas, austerity emerged as a doctrine of neoliberalism in the 20th century. [13]

Economist David M. Kotz suggests that the implementation of austerity measures following the financial crisis of 2007–2008 was an attempt to preserve the neoliberal capitalist model. [14]

In the 1930s during the Great Depression, anti-austerity arguments gained more prominence. John Maynard Keynes became a well known anti-austerity economist, [13] arguing that "The boom, not the slump, is the right time for austerity at the Treasury."

Contemporary Keynesian economists argue that budget deficits are appropriate when an economy is in recession, to reduce unemployment and help spur GDP growth. [15] According to Paul Krugman, since a government is not like a household, reductions in government spending during economic downturns worsen the crisis. [16]

Across an economy, one person's spending is another person's income. In other words, if everyone is trying to reduce their spending, the economy can be trapped in what economists call the paradox of thrift, worsening the recession as GDP falls. In the past this has been offset by encouraging consumerism to rely on debt, but after the 2008 crisis, this is looking like a less and less viable option for sustainable economics.

Krugman argues that, if the private sector is unable or unwilling to consume at a level that increases GDP and employment sufficiently, then the government should be spending more in order to offset the decline in private spending. [16] Keynesian theory is proposed as being responsible for post-war boom years, before the 1970s, and when public sector investment was at its highest across Europe, partially encouraged by the Marshall Plan.

An important component of economic output is business investment, but there is no reason to expect it to stabilize at full utilization of the economy's resources. [17] High business profits do not necessarily lead to increased economic growth. (When businesses and banks have a disincentive to spend accumulated capital, such as cash repatriation taxes from profits in overseas tax havens and interest on excess reserves paid to banks, increased profits can lead to decreasing growth.) [18] [19]

Economists Kenneth Rogoff and Carmen Reinhart wrote in April 2013, "Austerity seldom works without structural reforms – for example, changes in taxes, regulations and labor market policies – and if poorly designed, can disproportionately hit the poor and middle class. Our consistent advice has been to avoid withdrawing fiscal stimulus too quickly, a position identical to that of most mainstream economists."

To help improve the U.S. economy, they (Rogoff and Reinhart) advocated reductions in mortgage principal for 'underwater homes'—those whose negative equity (where the value of the asset is less than the mortgage principal) can lead to a stagnant housing market with no realistic opportunity to reduce private debts. [20]

Multiplier effects Edit

In October 2012, the IMF announced that its forecasts for countries that implemented austerity programs have been consistently overoptimistic, suggesting that tax hikes and spending cuts have been doing more damage than expected and that countries that implemented fiscal stimulus, such as Germany and Austria, did better than expected. [21]

The IMF reported that this was due to fiscal multipliers that were considerably larger than expected: for example, the IMF estimated that fiscal multipliers based on data from 28 countries ranged between 0.9 and 1.7. In other words, a 1% GDP fiscal consolidation (i.e., austerity) would reduce GDP between 0.9% and 1.7%, thus inflicting far more economic damage than the 0.5 previously estimated in IMF forecasts. [22]

In many countries, little is known about the size of multipliers, as data availability limits the scope for empirical research.

For these countries, Nicoletta Batini, Luc Eyraud and Anke Weber propose a simple method—dubbed the "bucket approach"—to come up with reasonable multiplier estimates. The approach bunches countries into groups (or "buckets") with similar multiplier values, based on their characteristics, and taking into account the effect of (some) temporary factors such as the state of the business cycle.

Different tax and spending choices of equal magnitude have different economic effects: [23] [24] [25]

For example, the U.S. Congressional Budget Office estimated that the payroll tax (levied on all wage earners) has a higher multiplier (impact on GDP) than does the income tax (which is levied primarily on wealthier workers). [26] In other words, raising the payroll tax by $1 as part of an austerity strategy would slow the economy more than would raising the income tax by $1, resulting in less net deficit reduction.

In theory, it would stimulate the economy and reduce the deficit if the payroll tax were lowered and the income tax raised in equal amounts. [27]

Crowding in or out Edit

The term "crowding out" refers to the extent to which an increase in the budget deficit offsets spending in the private sector. Economist Laura D'Andrea Tyson wrote in June 2012, "By itself an increase in the deficit, either in the form of an increase in government spending or a reduction in taxes, causes an increase in demand". How this affects output, employment, and growth depends on what happens to interest rates:

When the economy is operating near capacity, government borrowing to finance an increase in the deficit causes interest rates to rise and higher interest rates reduce or "crowd out" private investment, reducing growth. This theory explains why large and sustained government deficits take a toll on growth: they reduce capital formation. But this argument rests on how government deficits affect interest rates, and the relationship between government deficits and interest rates varies.

When there is considerable excess capacity, an increase in government borrowing to finance an increase in the deficit does not lead to higher interest rates and does not crowd out private investment. Instead, the higher demand resulting from the increase in the deficit bolsters employment and output directly. The resultant increase in income and economic activity in turn encourages, or "crowds in", additional private spending.

Some argue that the "crowding-in" model is an appropriate solution for current economic conditions. [9]

Government budget balance as a sectoral component Edit

According to economist Martin Wolf, the U.S. and many Eurozone countries experienced rapid increases in their budget deficits in the wake of the 2008 crisis as a result of significant private-sector retrenchment and ongoing capital account surpluses.

Policy choices had little to do with these deficit increases. This makes austerity measures counterproductive. Wolf explained that government fiscal balance is one of three major financial sectoral balances in a country's economy, along with the foreign financial sector (capital account) and the private financial sector.

By definition, the sum of the surpluses or deficits across these three sectors must be zero. In the U.S. and many Eurozone countries other than Germany, a foreign financial surplus exists because capital is imported (net) to fund the trade deficit. Further, there is a private-sector financial surplus because household savings exceed business investment.

By definition, a government budget deficit must exist so all three net to zero: for example, the U.S. government budget deficit in 2011 was approximately 10% of GDP (8.6% of GDP of which was federal), offsetting a foreign financial surplus of 4% of GDP and a private-sector surplus of 6% of GDP. [28]

Wolf explained in July 2012 that the sudden shift in the private sector from deficit to surplus forced the U.S. government balance into deficit: "The financial balance of the private sector shifted towards surplus by the almost unbelievable cumulative total of 11.2 per cent of gross domestic product between the third quarter of 2007 and the second quarter of 2009, which was when the financial deficit of US government (federal and state) reached its peak. No fiscal policy changes explain the collapse into massive fiscal deficit between 2007 and 2009, because there was none of any importance. The collapse is explained by the massive shift of the private sector from financial deficit into surplus or, in other words, from boom to bust." [28]

Wolf also wrote that several European economies face the same scenario and that a lack of deficit spending would likely have resulted in a depression. He argued that a private-sector depression (represented by the private- and foreign-sector surpluses) was being "contained" by government deficit spending. [29]

Economist Paul Krugman also explained in December 2011 the causes of the sizable shift from private-sector deficit to surplus in the U.S.: "This huge move into surplus reflects the end of the housing bubble, a sharp rise in household saving, and a slump in business investment due to lack of customers." [30]

One reason why austerity can be counterproductive in a downturn is due to a significant private-sector financial surplus, in which consumer savings is not fully invested by businesses. In a healthy economy, private-sector savings placed into the banking system by consumers are borrowed and invested by companies. However, if consumers have increased their savings but companies are not investing the money, a surplus develops.

Business investment is one of the major components of GDP. For example, a U.S. private-sector financial deficit from 2004 to 2008 transitioned to a large surplus of savings over investment that exceeded $1 trillion by early 2009, and remained above $800 billion into September 2012. Part of this investment reduction was related to the housing market, a major component of investment. This surplus explains how even significant government deficit spending would not increase interest rates (because businesses still have access to ample savings if they choose to borrow and invest it, so interest rates are not bid upward) and how Federal Reserve action to increase the money supply does not result in inflation (because the economy is awash with savings with no place to go). [30]

Economist Richard Koo described similar effects for several of the developed world economies in December 2011: "Today private sectors in the U.S., the U.K., Spain, and Ireland (but not Greece) are undergoing massive deleveraging [paying down debt rather than spending] in spite of record low interest rates. This means these countries are all in serious balance sheet recessions. The private sectors in Japan and Germany are not borrowing, either. With borrowers disappearing and banks reluctant to lend, it is no wonder that, after nearly three years of record low interest rates and massive liquidity injections, industrial economies are still doing so poorly. Flow of funds data for the U.S. show a massive shift away from borrowing to savings by the private sector since the housing bubble burst in 2007. The shift for the private sector as a whole represents over 9 percent of U.S. GDP at a time of zero interest rates. Moreover, this increase in private sector savings exceeds the increase in government borrowings (5.8 percent of GDP), which suggests that the government is not doing enough to offset private sector deleveraging." [31]

Many scholars have argued that how the debate surrounding austerity is framed has a heavy impact on the view of austerity in the public eye, and how the public understands macroeconomics as a whole. Wren-Lewis, for example, coined the term 'mediamacro', which refers to "the role of the media reproducing particularly corrosive forms of economic illiteracy—of which the idea that deficits are ipso facto 'bad' is a strong example." [32] This can go as far as ignoring economists altogether however, it often manifests itself as a drive in which a minority of economists whose ideas about austerity have been thoroughly debunked being pushed to the front to justify public policy, such as in the case of Alberto Alesina (2009), whose pro-austerity works were "thoroughly debunked by the likes of the economists, the IMF, and the Centre for Budget and Policy Priorities (CBPP)." [33] Other anti-austerity economists, such as Seymour [34] have argued that the debate must be reframed as a social and class movement, and its impact judged accordingly, since statecraft is viewed as the main goal.

Further, critics such as Major have highlighted how the OECD and associated international finance organisations have framed the debate to promote austerity, for example, the concept of 'wage-push inflation' which ignores the role played by the profiteering of private companies, and seeks to blame inflation on wages being too high. [35] In layman's terms, if a loaf of bread costs £1 in 2014, and the minimum/average wage goes up also, the companies realise that they can get more selling that same loaf of bread for £1.20, creating inflation which devalues the currency the OECD opted to view the wages as the cause, rather than the companies seeking to make a profit. This places an emphasis on the 'balance of finances', and ignores the role played by private interests which are completely avoidable, but is used to justify Austerity measures and the transfer of debt down to the working class, and ties in heavily to the discredited theory of 'trickle down economics.' Framing the debate in this way, and ignoring the balance between bonds, taxation, interest rates, and inflation which the government can manipulate and control, leads to false assertions and oversimplified economics which conflate a household budget with a national economy—an entirely false equivalency.

According to a 2020 study, austerity increases the risk of default in situations of severe fiscal stress, but reduces the risk of default in situations of low fiscal stress. [36]


Austerity

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Austerity, also called austerity measures, a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits.

Austerity measures can in principle be used at any time when there is concern about government expenditures exceeding government revenues. Often, however, governments delay resorting to such measures because they are usually politically unpopular. Instead, governments tend to rely on other means—for example, deficit financing, which involves borrowing from financial markets—to mitigate budget deficits in the short run, a decision that usually necessitates the adoption of harsher austerity measures in the long run.

Historically, austerity measures have usually been implemented during times of economic crisis, when they are easier for governments to justify to their electorates and when they are often necessary to maintain a country’s credit worthiness in the eyes of lenders. During Argentina’s economic crisis in 1998–2002, the country adopted severe austerity measures, largely following the advice of its major creditor, the International Monetary Fund (IMF) they included cuts in government pensions and salaries and in numerous social programs, as well as significant tax increases. In return, the IMF agreed to extend a low-interest loan to the Argentine government to help its ailing economy. Russia and Turkey underwent similar hardships during their economic crises in 1998 and 2001, respectively. In Europe the Great Recession of 2007–09 forced many euro-zone countries (the countries that use the euro) to adopt similar austerity packages. Greece, Portugal, Spain, Ireland, Italy, and the United Kingdom implemented serious belt-tightening policies that involved severe cuts in social programs and concurrent tax hikes.

The use of austerity measures during times of economic hardship has caused much controversy about their purpose and usefulness. Many economists have pointed out that the measures have contractionary effects and usually exacerbate ongoing economic recessions. In fact, in many parts of the world, austerity measures imposed in the aftermath of economic crises have not helped countries move out of recession faster and have resulted in major public outrage and protests. In Argentina, Russia, and Turkey, for example, many high-level government officials resigned when mistimed austerity packages did more harm than good for their economies. Protests led by indignados (indignant citizens) erupted in Spain in May 2011, mainly fueled by the Spanish government’s decision to cut public spending for social programs. In Greece the Indignant Citizens Movement helped gather more than 300,000 people in front of the Greek parliament on June 5, 2011, resulting in months of protests, sit-ins, and sometimes-violent clashes with the police. The events in Greece eventually led to the defeat of the New Democracy party and a first-time victory for Syriza, whose major campaign promise had been to end austerity programs. Similar protests took place in Ireland, the United Kingdom, and other parts of Europe in 2010–11, usually resulting in the resignation of key government officials.


Contents

A UK government budget surplus in 2001–2 was followed by many years of budget deficit [7] and after the financial crisis of 2007–2008 a period of economic recession began in the country. The first austerity measures were introduced in late 2008. [8] In 2009, the term age of austerity, which had previously been used to describe the years immediately following World War II, [9] was popularised by Conservative Party leader David Cameron. In his keynote speech to the Conservative Party forum in Cheltenham on 26 April 2009 he declared that "the age of irresponsibility is giving way to the age of austerity" and committed to end years of what he characterised as excessive government spending. [10] [11] [12] Conservative Party leaders also promoted the idea of budget cuts bringing about the Big Society, a political ideology involving reduced government, with grass-roots organizations, charities and private companies delivering public services more efficiently. [5]

The austerity programme was initiated in 2010 by the Conservative and Liberal Democrat coalition government. In his June 2010 budget speech, the Chancellor George Osborne identified two goals. The first was that the structural current budget deficit would be eliminated to "achieve [a] cyclically-adjusted current balance by the end of the rolling, five-year forecast period". The second was that national debt as a percentage of GDP would be falling. The government intended to achieve both of its goals through substantial reductions in public expenditure. [8] This was to be achieved by a combination of public spending reductions and tax increases amounting to £110 billion. [13] The end of the forecast period was 2015–16.

Between 2010 and 2013, the Coalition government said that it had reduced public spending by £14.3 billion compared with 2009–10. [14] Growth remained low during this period, while unemployment rose. [13] In a speech in 2013, David Cameron indicated that his government had no intention of increasing public spending once the structural deficit had been eliminated and proposed that the public spending reduction be made permanent. [15] In 2014, the Treasury extended the proposed austerity period until at least 2018. [16] By 2015, the deficit, as a percentage of GDP, had been reduced to half of what it was in 2010, and the sale of government assets (mostly the shares of banks nationalised in the 2000s) had resulted in government debt as a proportion of GDP falling. [8] By 2016, the Chancellor was aiming to deliver a budget surplus by 2020, but following the result of the 2016 United Kingdom European Union membership referendum, he expressed the opinion that this goal was no longer achievable. [17]

Osborne's successor as Chancellor, Philip Hammond, retained the aim of a balanced budget [18] but abandoned plans to eliminate the deficit by 2020. [19] In Hammond's first Autumn statement in 2016, there was no mention of austerity, and some commentators concluded that the austerity programme had ended. [20] [21] However, in February 2017, Hammond proposed departmental budget reductions of up to 6% for the year 2019–20, [14] and Hammond's 2017 budget continued government policies of freezing working-age benefits. [22] Following the 2017 snap general election, Hammond confirmed in a speech at Mansion House that the austerity programme would be continued [23] and Michael Fallon, the Secretary of State for Defence, commented: "we all understand that austerity is never over until we've cleared the deficit". [24] Government spending reductions planned for the period 2017–2020 are consistent with some departments, such as the Department for Work and Pensions and the Ministry of Justice, experiencing funding reductions of approximately 40% in real terms over the decade 2010–2020. [25] During 2017 an overall budget surplus on day-to-day spending was achieved for the first time since 2001. This fulfilled one of the fiscal targets set by George Osborne in 2010, which he had hoped to achieve in 2015. [26]

In 2018 the Office for Budget Responsibility (OBR) predicted that in 2018–19 public sector debt would fall as a share of national income for the first time since 2001–02, while tax revenues would exceed public spending. Hammond's 2018 Spring Statement suggested that austerity measures could be reduced in the Autumn Budget of that year. However, according to the Resolution Foundation and the Institute for Fiscal Studies (IFS), the OBR's forecasts for borrowing and debt were based on the assumption that the government continued with the planned spending reductions that were announced after the 2015 general election. By 2018 only 25% of the proposed reductions in welfare spending had been implemented. The Resolution Foundation calculated that the proposed reduction in spending on working-age benefits amounted to £2.5 billion in 2018–19 and £2.7 billion in 2019–20, with the households most affected being the poorest 20%. The IFS calculated that the OBR's figures would require spending on public services per person in real terms to be 2% lower in 2022–23 than in 2019–20. [27]

The deficit in the first quarter of the 2018–19 financial year was lower than at any time since 2007 [28] and by August 2018 it had reached the lowest level since 2002–3. Hammond's aim at this time was to eliminate the deficit entirely by the mid-2020s. [7] At the Conservative Party conference in October 2018 Prime Minister Theresa May indicated her intention to end the austerity programme following Brexit in 2019 [29] and opposition leader Jeremy Corbyn said that austerity could not be ended without significant increases in public spending. [30] The IFS calculated that funding an end to austerity would require an additional £19 billion per year raised through higher government borrowing or tax increases. [31] Hammond's preference was to reduce the national debt with more years of austerity [32] but in the October 2018 budget he agreed to defer the target date for eliminating the deficit, abandoning plans to achieve a surplus in 2022–23 to allow an increase in health spending and tax cuts. The Resolution Foundation described the step as a "significant easing of austerity". [33] Hammond said that the "era of austerity is finally coming to an end" [34] but that there would be no "real terms" increase in public spending apart from on the NHS. [35]

The austerity programme included reductions in welfare spending, the cancellation of school building programs, reductions in local government funding, and an increase in VAT. [13] Spending on the police, courts and prisons was also reduced. [5] A number of quangos were abolished, merged or reduced as a result of the 2010 UK quango reforms. [36]

Arts and culture Edit

The Local Government in England is one of the main contributors to the funding of the arts, spending more than £1 billion annually. [37] However, due to austerity policies and challenges to sustainability in recent years, council spending on arts and culture development has suffered a reduction of 16.6%. [38] A report by the Arts Council England revealed that arts and culture have suffered a £236 million (20%) decline since 2010 [39] and a further report from the Institute for Fiscal Studies highlighted that spending per person has reduced by 23%. [40]

Libraries Edit

Public libraries are funded by local governments to provide free services that enrich culture, information and education. [41] The emergence of austerity and subsequent cuts to local government funding has caused library services to suffer - including the closure of almost 800 public libraries since the launch of austerity in 2010. [42]

Currently, library services are governed by the Public Libraries and Museums Act 1964, [43] which outlines the duty of local authorities to provide a 'comprehensive and efficient library service for all'. Part of this duty involves an understanding of priorities and financial constraints of local councils, [44] which has specifically been subject to the impact of austerity over recent years. According to the Chartered Institute of Public Finance and Accountancy (CIPFA), there were 3,583 library branches in England, Wales and Scotland that collectively employed 15,300 people alongside 51,000 volunteers in 2019. [45] Prior to this, there were 35 library closures since 2018 and a huge 773 closures since 2010. [46] Library closures have also been reflected in the use of public libraries. CIPFA noted that library visitors across the UK have substantially declined from 335 million annual visitors in 2005 to 215 million in 2019/20. [47]

With regards to local government spending on libraries, CIPFA released data to show that spending fell from £1 billion in 2009/10 to £774.8 million in 2018/19 with a further 2.6% decline in 2019/20 to £725 million. [48] These budget cuts have only furthered as a result of the COVID-19 pandemic, accompanied by an increased demand for digital and remote library services. The pandemic has seen an increase of 600% for digital borrowing and an increase of 400% for e-lending. [49] As a result of this, the future of public libraries is uncertain. It may be that following the pandemic, their services could undergo dramatic changes within local communities [50] that are more accommodating to their reduced funding as a result of austerity.

Museums Edit

National museums in the United Kingdom are typically run and funded by the government. However, there are some museums which have separate agreements with local authorities meaning they receive financial support through government programmes. [51] The extent of this funding has been greatly reduced since the beginning of austerity. For example, between 2007 and 2017, museums suffered a 13% reduction in funding, [52] resulting in the closure of at least 64 museums between 2010 and 2019 [53] and visitor numbers halving from 8,000 to 4,000 between 2010 and 2015. [54]

Whilst museums are free of charge in order to broaden the demographic of visitors and provide universal access, [55] many museums have had to result to privatisation in order to accommodate budget cuts. [56] 2013 saw the privatisation of the British Museum, followed by the Imperial War Museum in 2014 and the National Gallery in 2015.

The budget cuts stemming from austerity have also been exacerbated by the COVID-19 pandemic. A report conducted by the Institute for Fiscal Studies (IFS) highlighted that £5.2 billion has been promised by the government to councils, despite the extra spending of £4.4 billion due to the pandemic and an overall budget pressure of £7.2 billion for 2020/21. [57] This £2 billion budget gap will likely result in greater cuts to services provided by museums. [58]

Child poverty Edit

Between 1998 and 2012 the number of children living in "relative poverty" in the UK had fallen by approximately 800,000 to a total of around 3.5 million. Following the introduction of the Welfare Reform Act 2012 the number of children in "relative poverty" increased, with the total by 2019 around 600,000 higher than it had been in 2012. During those seven years the number of children obtaining food from the food banks of The Trussell Trust more than tripled. [5]

Demographics Edit

A number of independent reports have considered the demographic effects of the austerity programme. In 2011, activist collective Feminist Fightback described its gendered impact [59] and in 2012 the Fawcett Society published a report which was critical of the Treasury for not assessing the impact of austerity on women's equality. [60] A 2015 report by the Resolution Foundation identified age-related disparities in the effects of austerity changes. The report projected that during the 2010s transfers to local authorities would fall by 64% and that spending on working-age welfare would fall by 71%, while between 1997 and 2020 spending on older people and health would rise from 33.8% to 43.4% of total government spending. In the same year a group of political scientists at the University of Nottingham found that the impact of austerity on in-work benefits and housing policy had been harmful to working families with children, while wealthy pensioners and older homeowners had benefited. [61] In 2016 research from the Women's Budget Group and the Runnymede Trust indicated that women, people of colour and in particular women of colour had been affected most by austerity, and that they would continue to be affected disproportionately until 2020. This was due to the fact that black and Asian women were more likely to be employed in the public sector, be in low-paid jobs and insecure work, and experience higher levels of unemployment than other groups. [62] [63]

Research published in 2017 by the Joseph Rowntree Foundation identified an increase in child poverty and pensioner poverty compared to the previous year, following significant overall decreases during the previous 20 years. Reductions in benefit support and a shortage of affordable housing were considered to be contributing factors. [64]

Food banks Edit

Researchers have linked budget cuts and sanctions against benefit claimants to increasing use of food banks. In a twelve-month period from 2014 to 2015, over one million people in the United Kingdom had used a food bank, representing a "19% year-on-year increase in food bank use". [65] The use of food banks almost doubled between 2013 and 2017. [5] A study published in the British Medical Journal in 2015 found that each one percentage point increase in the rate of Jobseeker's Allowance claimants sanctioned was associated with a 0.09 percentage point rise in food bank use. [66] Research by The Trussell Trust found that the use of food banks increased more in areas where Universal Credit was introduced. [5]

However, the Organisation for Economic Co-operation and Development found that the number of people answering yes to the question "Have there been times in the past 12 months when you did not have enough money to buy food that you or your family needed?" decreased from 9.8% in 2007 to 8.1% in 2012, [67] leading some to say that the rise was due to both more awareness of food banks, and the government allowing Jobcentres to refer people to food banks when they were hungry, in contrast to previous governments. [68]

Housing Edit

Social Housing Edit

When the coalition government came to power in 2010, capital investment in new affordable homes was cut by 60%, while government-imposed caps on local authority borrowing continued to restrict their ability to raise money to build new homes. [69] Writing in Inside Housing, former housing minister John Healey observed that rate of starting social rented schemes had declined from 40,000 in 2009/10 to less than 1,000 in 2015/16. [70] When the government eventually released its "Affordable Homes Programme" for 2011-2015 and accompanying funding guidelines it established a new type of affordable housing- "affordable rent" that can be up to 80% of the market rent and hence at levels that can be significantly higher than social rents, and affordable rents are around 30% higher than social rents on average among housing association properties. [71] [72] [73] The provision of affordable rent is meant to compensate for the drastically reduced central government subsidy for new social housing (an average of £20,000 per home in 2012 versus £60,000 per home under the previous National Affordable Housing Programme 2008-2011), allowing housing associations and local authorities to raise more revenue from rent payments to be used for long-term capital investments. [74]

By 2018, a large majority of newly built social housing in England was created for affordable rent instead of the often much lower social rent, while the proportion of new-build social housing using affordable rent has been much less significant in Wales and Scotland where most new-build social housing continues to be built for social rent levels, while in Northern Ireland the affordable rent product has not been used. [75] Meanwhile, in London more than 10,000 existing properties that were previously let at social rent levels have been changed to affordable rent. Though housing benefit tenants, exempt as they are from LHA rates, are not directly effected by the move towards "affordable" as opposed to social rents, a large number of in-work tenants who many not qualify for any housing benefit will be directly effected by the higher rents. The number of people sleeping rough on any one night across England had more than doubled between 2010 and 2016 to an estimated 4,134, according to a government street count. [76]

Housing Benefit Edit

The benefit cap, introduced via the Welfare Reform Act 2012, set a maximum level for the amount of state welfare benefits that could be paid to an individual household in any one year. The measure came into effect in 2013 with the figure initially set at £26,000 per year, close to the average income of a family in the UK at that time. The anticipated reduction in government expenditure as a result of the measure was £225 million by April 2015. [77] The benefit cap initially affected approximately 12,000 households, mainly in high-rent areas of the UK such as London, but in 2016/17 the limit was reduced to £20,000 per annum (£23,000 in London) extending its effects to around 116,000 households across the UK. [78]

A Local Housing Allowance (LHA) policy restricting Housing Benefit for private sector tenants to cover a maximum number of rooms had been in place since 2008 and was initially set at the 50th percentile of rents in an area (essentially it covered the median rent), while in 2011 the calculation was changed to the equivalent of the 30th percentile of rents (the cheapest third of housing in an area) and the following year instead of updating the LHA rates the government announced that instead rates would increase by a maximum equivalent to the rise of the Consumer Price Index. In 2015 the government announced a complete four year freeze on LHA rates (with some of the areas experiencing higher rents having their LHA lifted by 3% with Targeted Affordability Funding). Additionally, non-disabled persons under 35 saw their LHA payment restricted to the shared accommodation rate (instead of the one-bedroom rate that had previously been available)

The under-occupancy penalty, introduced in 2013 and commonly known as the "bedroom tax", affected an estimated 660,000 working age social housing tenants in the UK, reducing weekly incomes by £12–£22. [79] Almost two thirds of the people affected by the penalty were disabled. [80] The measure reduced the expenditure of the Department for Work and Pensions by approximately £500 million per year. [81] In 2015, George Osborne announced that tenants in social housing would have their housing benefit limited to LHA rates (used for private-sector tenants) from 2019, though Theresa May announced in 2017 that this policy had been scrapped.

From April 2016 the LHA rates used to calculate maximum housing benefit levels for private sector tenants were frozen for four years. Research by the housing charity Shelter indicated that the proportion of such tenants likely to experience a shortfall in housing benefit was 80%, amounting to 300,000 families. The degree of shortfall depends on dwelling, location and individual circumstances, but Shelter expected that by 2020 the shortfall could in some cases reach hundreds of pounds a month. [82]

In April 2017, housing benefit payments were ended for new claims made by people aged 18–21. Research by Heriot-Watt University found that the policy would reduce annual government expenditure by £3.3 million. [83]

During the period of austerity, the rate of homelessness rapidly increased. For example, during 2016 the rate of homelessness increased by 16%. By 2018 the number of families living in bed and breakfast accommodation was almost 50,000, and there were many more "hidden homeless" people living on the floors and sofas of friends and acquaintances. An article in The BMJ regarded this as a "neon sign that something is fundamentally wrong" with how society is being run, noting that "homeless women die on average at 43 and homeless men at 47, compared with 77 for the rest of us". [79] The Office for National Statistics estimated that 597 homeless people died in England and Wales in 2017, an increase of 24% since 2012. [84]

Research was published in 2018 by Shelter analysing government data. It indicated that all forms of homelessness had increased since 2010 and that the number of households living in temporary accommodation had risen to more than 79,000. By 2017 over 33,000 families living in temporary accommodation were working, a proposition that had increased from 44% in 2013 to 55% in 2017. Shelter attributed this to a combination of higher rents, the freeze on housing benefits and the shortage of social housing. [85]

Local government Edit

The Local Government Association has identified a decrease in UK Government funding of almost 60 per cent for local authorities in England and Wales between 2010 and 2020. [86] The reduction in central government funding for county councils in England combined with an increasing demand for social care services has caused reductions in expenditure on other services such as public libraries, refuse collection, road maintenance and Sure Start, along with increases to council tax rates and the introduction of additional charges for county council services. [87] Local authority subsidies to bus services were reduced by almost half between 2010 and 2018. [88]

Research by the Local Government Chronicle has indicated that between 2010 and 2018 there were more than 220,000 redundancies of local authority employees and nearly £4 billion was spent on redundancy payments, excluding outsourcing contracts. Rob Whiteman of CIPFA commented that "this scale of job losses reflects the intense financial pressure on councils as they now have no option other than to provide the bare minimum statutory provisions". [89] Analysis by the Local Government Association in 2018 identified a decrease in the Revenue Support Grant for local authorities in England from £9,927 million in 2015–16 to £2,284 million for 2019–20, leaving 168 authorities with no grant for 2019–20. [90] UK government plans in 2018 proposed the phasing out of grants to local authorities in England, instead funding English local government through a combination of local business rates and council tax. [91]

Research by the University of Cambridge published in 2018 said that the greatest reductions in local authority spending had occurred in impoverished post-industrial cities in the north of England and some poor Inner London boroughs. Over 30 such authorities in England had reduced spending by more than 30% between 2010 and 2017, with seven of them reducing spending by more than 40%. In contrast councils in wealthier areas had made smaller reductions. Councils in England experienced an average spending reduction of 24% compared to 12% in Scotland and 11.5% in Wales, the difference resulting from devolved government in those nations. [91]

In 2018 Northamptonshire County Council become insolvent and proposed reducing services to the minimum required by law. Austerity measures were blamed for the insolvency, as was the council's refusal to raise council tax despite the rising costs of providing social services. At the time the National Audit Office said that up to 15 other local authorities were also at risk of insolvency. [92] A survey of council leaders, chief executives and mayors conducted by the New Local Government Network indicated that more than 70% of respondents expected that they would be unable to provide non-statutory services beyond 2023 if funding remained as restricted as it had been since 2010. [93] In early 2019, three quarters of councils said they would have to raise taxes close to the legal maximum in order to cover costs, though many would nevertheless be cutting services. [94]

Mental health Edit

A 2012 article by Martin Knapp published in The BMJ's journal Evidence-Based Mental Health said that mental health problems could be attributed to a person's financial situation. At that time 45% of those who were in debt had mental health problems, compared to 14% of those who were not in debt. In 2010 over 40% of benefit claimants in Britain had "mental and behavioural disorders" recorded as their primary health condition. [95]

A 2015 report published by Psychologists for Social Change indicated that austerity had contributed significantly to the incidence and level of depression and other mental health conditions within the population. [96]

In 2016, figures analysed by the King's Fund think tank showed that "mental health trusts in England were still having their budgets cut, despite government assurances they would be funded on a par with physical healthcare". The analysis "suggests 40% of the 58 trusts saw budgets cut in 2015–16". [97]

A 2016 report authored by the NatCen Social Research for UNISON showed that LGBT people had suffered from a lack of access to mental health services as a result of austerity. [98]

Mortality Edit

Research funded by the National Institute for Health Research and published in 2015 identified austerity as one of the factors responsible for a rise in suicide attempts and suicide deaths since 2008, particularly in regard to Jobcentre policies. [99] In 2017, the Royal Society of Medicine said that government austerity decisions in health and social care were likely to have resulted in 30,000 deaths in England and Wales in 2015. [100] [101] Research by University College London published in BMJ Open in 2017 compared the figures for health and social care funding during the 2000s with that during the period 2010–2014. It found that annual growth in health funding during the 2000s was 3.8%, but after 2010 this dropped to 0.41%. Annual growth in social care funding of 2.2% during the 2000s became an annual decrease of 1.57% after 2010. This coincided with mortality rates decreasing by 0.77% annually during the 2000s but rising by 0.87% annually after 2010. [102]

The rate of increase in life expectancy in England nearly halved between 2010 and 2017, according to research by epidemiology professor Michael Marmot. He commented that it was "entirely possible" that austerity was the cause [103] and said: "If we don't spend appropriately on social care, if we don't spend appropriately on health care, the quality of life will get worse for older people and maybe the length of life, too." [104]

A study published in BMJ Open in 2017 linked austerity to 120,000 extra deaths in England, primarily as a result of a reduction in the number of nurses. [105] [106] Another study put it at 130,000. [107] By 2018 figures from the Office for National Statistics (ONS) were showing a fall in life expectancy for those in poorer socioeconomic groups and those living in deprived areas, [108] while average UK life expectancy had stopped improving. Public Health England was asked to carry out a review of life expectancy trends but government ministers said that the arguments put forward by some academics, that austerity had contributed to the change, could not be proved. [109] ONS figures published in 2018 indicated that the slowdown in general life expectancy increase was one of the highest among a group of 20 of the world's leading economies. [110]

Police and crime Edit

Between 2010 and 2019 in England and Wales the number of police officers employed was reduced by approximately 20,000. At the same time the measured incidence of murder and robbery increased to their highest levels since the 2000s. Some police leaders have suggested that the reduction in police numbers is the cause, while other analysts have proposed reductions in spending on youth services and social services as the cause. [5]

Public sector pay Edit

There are approximately five million public sector workers in the UK. Between 2011 and 2013 there was a two-year pay freeze for all public sector workers [111] earning an annual salary of £21,000 or more, which was expected to reduce public expenditure by £3.3 billion by 2014–15. [112] In subsequent years a public sector pay cap resulted in annual public sector wage increases being effectively capped at 1% for 2013–2016, [111] extended to 2020 in the 2015 budget. [112] Advice was given to ministers by the civil service that the policy would result in a pay cut for many people in real terms and could increase child poverty. [113] [114] By 2015 the number of people employed in the Civil Service had been reduced to the lowest level since World War II and public sector employees made up 17.2% of the total workforce, the smallest proportion since comparable records began in 1999. [115] During the 2017 general election the Conservative Party proposed retaining the cap until 2020, potentially reducing public sector expenditure by £5bn. A Labour Party amendment to the 2017 Queen's Speech proposing the removal of the cap was defeated. [111] A 2017 report commissioned by the Office of Manpower Economics indicated that between 2005 and 2015 median hourly earnings fell by 3% in real terms for public sector workers whose salaries are set on the advice of pay review bodies [116] (around 45% of public sector staff). [117] In September 2017, the Scottish Government announced that it intended to end the public sector pay cap in Scotland from 2018, [118] and shortly afterwards the UK government announced the ending of the cap in England and Wales. [119] By autumn 2017 public sector pay had fallen behind private sector pay for comparable work. [120]

Social security Edit

Working-age social security payments such as Universal Credit, Child Benefit, Child Tax Credit and Working Tax Credit, Housing Benefit and Jobseeker's Allowance have had their rate of increase reduced by austerity. [121] From 2013 onwards, these payments were limited to a maximum annual increase of 1% instead of being increased annually according to the rate of inflation, while Child Benefit, previously available to all UK households with minor children was means-tested for the first time, with households where at least one parent earning over £50,000 a year having their amount reduced. [122] The policy of suspending the social security payments of unemployed claimants who were judged not to be adequately seeking work was continued, and the frequency and severity of the sanctions were increased. [123] From 2016 a four-year freeze on all working-age social security payments was introduced. It was anticipated that it would affect 11 million UK families and reduce expenditure by £9 billion, a figure later increased to £13 billion. [124] The Welfare Reform and Work Act 2016 abolished the Work-Related Activity Component of Employment and Support Allowance for new claimants from April 2017. This reduced the weekly social security payments for the disabled people affected by £29.05 a week (at 2017/18 rates). The reduction in government expenditure was initially forecast to be £640 million per annum by 2020/21, though this was later revised to £450 million. [125]

Analysis in 2018 by the Resolution Foundation indicated that by April 2019 the freeze in social security payments would have resulted in more than 10 million households experiencing a loss of income in real terms, with the lack of an inflation-related increase in 2019 resulting in the average low-income couple with children losing an additional £210 per year. The analysis also said that the cumulative effect of these social security limitations had been to reduce the value of working-age benefits by more than 6% in real terms. Child Benefit had become worth less than it was in 1999 in real terms, and for a second child it was worth 14% less than when it was introduced in 1979. [121]

State Pension Edit

The value of the State Pension has not been subject to austerity measures, being increased each year since 2011 by a minimum of 2.5% per annum. [126] However, some people have been adversely affected financially in their 60s by the rise in the age at which the State Pension is first paid. The decision to equalise the State Pension ages of men and women was made by the government in 1995. From 2010 the women's State Pension age was steadily raised from 60 with the aim of matching that of men at 65 by 2018. An additional increase to 66 for both sexes is intended to be implemented by 2020. Research by the Institute for Fiscal Studies (IFS) in 2017 found that the household incomes of over one million women aged between 60 and 62 had become £32 a week lower on average, and that poverty rates among that group had risen. The IFS also calculated that the reduction in state expenditure combined with the additional tax income from women continuing to work in their 60s resulted in a net increase in state revenue of £5.1 billion per year. [127]

A rise in the State Pension age to 67 for both sexes in 2036 had been proposed by Gordon Brown in the 2000s, followed by a rise to 68 in 2046. [128] By 2014 the date set for the rise to 67 had been brought forward to 2026 [129] and in 2018 the rise to 68 was brought forward to 2037. This last change alone resulted in an anticipated reduction in DWP expenditure of £74bn by 2046–47. [130]

Reductions in public expenditure in Northern Ireland have often been described as not as harsh as those for the UK as a whole. This is primarily due to the fact that the UK government has not been able to exert direct control over welfare expenditure in Northern Ireland, because welfare policy is a devolved matter for the Northern Ireland Assembly. [8] On a number of occasions the Assembly has not agreed to cuts in public spending, effectively refusing to make them, despite pressure from the UK government. [131] However, the UK government has sought to recoup the expected savings through a fine on Northern Ireland's block grant, which is calculated according to the Barnett formula, and which fell by 8% in real terms between 2010 and 2015. [8] Research by Oxfam Ireland which was published in 2014 indicated that austerity measures were affecting Northern Ireland disproportionately due to its being one of the UK's most disadvantaged regions with a high dependence on public spending. [132] In 2017 the Conservative–DUP agreement resulted in an additional £1 billion of public sector funding for Northern Ireland over two years, with the money focused on the health, infrastructure and education budgets. [133]

During the early years of the austerity programme, many economists argued that the financial changes of the austerity programme should not be undertaken as extensively and as quickly as was done. Osborne, however, argued that without the implementation of the programme in the way that it was, another financial crisis was likely. [13]

The rationale behind the need for achieving a balanced budget in the financial climate following the Great Recession has been questioned by some Keynesian economists. Andrew Gamble writing in Parliamentary Affairs in 2015 commented: [134]

Most macroeconomists now agree that the austerity programme pursued by the Coalition Government in its first two years was both too severe and unnecessary and set back the economic recovery which was underway in the first half of 2010. The Office of Budget Responsibility confirmed that the austerity programme reduced GDP, while the Oxford economist Simon Wren-Lewis has calculated that the Coalition Government's austerity programme cost the average household £4000 over the lifetime of the Parliament and severely damaged those public services which were not ring-fenced.

Ha-Joon Chang, writing in 2017, observed that "in today’s UK economy, whose underlying stagnation has been masked only by the release of excess liquidity on an oceanic scale, some deficit spending may be good – necessary, even". [135] Some criticism has been based on allegations of economic opportunism, with the government said to have made politically popular cuts rather than those necessary to achieve its long-term aims. Paul Mac Flynn wrote for the Nevin Economic Research Institute in 2015 that: [8]

Instead of focussing on the long-term structural causes of increases in public expenditure, the current government have adopted glib and uninformed targets for reductions in overall expenditure. Rather than tackling a housing crisis or low pay they have introduced measures like the benefit cap and the bedroom tax.

Ben Chu, economics editor of The Independent newspaper, commented that: "Austerity, as practiced by Osborne, was essentially a political choice rather than an economic necessity, and the human costs have been huge". [13]

Economists Alberto Alesina, Carlo A. Favero and Francesco Giavazzi, writing in Finance & Development in 2018, argued that deficit reduction policies based on spending cuts typically have almost no effect on output, and hence form a better route to achieving a reduction in the debt-to-GDP ratio than raising taxes. The authors commented that the UK government austerity programme had resulted in growth that was higher than the European average and that the UK's economic performance had been much stronger than the International Monetary Fund had predicted. [136]

The United Nations carried out an investigation in 2018 led by Philip Alston, the United Nations special rapporteur on extreme poverty and human rights, into the effect of austerity policies in the UK. [137] Alston concluded that the austerity programme had breached UN human rights agreements relating to women, children, disabled people and economic and social rights. [138] Alston's report described the programme as "entrenching high levels of poverty and inflicting unnecessary misery in one of the richest countries in the world". [5]

Ring-fenced departments Edit

Peter Dominiczak (political editor at The Daily Telegraph) wrote that because spending on the NHS and foreign aid is ring-fenced, "other Whitehall departments will face savage cuts to their budgets". [139] However, some (such as Dr Louise Marshall in The Guardian) have questioned whether the National Health Service (NHS) really is exempt from austerity measures. [140]

A YouGov poll in 2015 found that whilst 58% of those surveyed viewed austerity as "necessary", and 48% judged it to be good for economy (compared to 34% who thought it bad for the economy), 50% thought the programme was being carried out "unfairly". [141]

The 2017 British Social Attitudes Survey found that 48% of those surveyed during the previous year wanted higher taxes to pay for more public spending, the first time since 2008 that more people wanted an increase in taxation and spending than opposed it, and the highest proportion to support such measures since 2004. [142]

An April 2018 opinion poll by Number Cruncher Politics in the Financial Times found that 66% of British adults, including majorities of all major parties' supporters, thought austerity had "gone too far". [143] A poll by Survation for the GMB trade union published in spring 2018 found that 62% of respondents wanted the 2018 spring budget to increase spending on public services in real terms, while 48% of those who had voted for the Conservative Party at the 2017 general election thought that austerity had been excessive. [144]

The 2010 UK general election was contested by a Labour Party and a Conservative Party which had both committed themselves to austerity policies. Labour's then-Chancellor of the Exchequer Alistair Darling predicted that "two parliaments of pain" would be necessary to address the UK's budget deficit. The Institute for Fiscal Studies said that Labour's plans implied a cumulative decline of 11.9% in public spending over four years. This would reduce public expenditure by a total of £46 billion in inflation-adjusted terms, taking it from over 27% of the economy to below 21%, back to its level in the late-1990s. The IFS also said that there appeared to be only a modest difference between the plans put forward by the two main political parties. [145] As predicted, neither party won a majority at that year's general election resulting in the first hung parliament in 36 years, and the Conservative Party forming a coalition government with the centrist Liberal Democrats.

At the end of the first full parliament under the austerity programme, Labour and the Conservatives were deadlocked in the polls. At the 2015 UK general election, the Conservatives modified their commitment to austerity with a series of unfunded spending promises, including £8 billion of additional expenditure for the NHS. [146] At the same time, the 2015 Conservative Party general election manifesto proposed making sufficient reductions in public spending and welfare to eliminate the budget deficit entirely by 2018–19 and run a small budget surplus by 2020. The Labour manifesto proposed the less rigorous objective of reducing the budget deficit every year with the aim of seeing debt as a share of GDP falling by 2020 and achieving a budget surplus "as soon as possible". This would render the spending reductions proposed by the Conservatives unnecessary, according to some analyses. [147] The Conservatives won the general election with an overall majority for the first time in 23 years, which was unexpected by most polls as they had predicted another hung parliament. [148] Political commentator Patrick Wintour argued that one of the reasons for Labour's loss was its lack of clarity on the cause of the budget deficit. [141] [149] Anti-austerity protests followed the election result, [148] but post-election polling for an independent review conducted by Campaign Company for Labour MP Jon Cruddas indicated that voters in England and Wales did not support an anti-austerity platform, concluding: "the Tories did not win despite austerity, but because of it". [150]

The 2017 UK general election was held almost three years earlier than scheduled under the Fixed-term Parliaments Act 2011 in an attempt to increase the Government's majority to facilitate the Brexit process. The Conservative manifesto pledged to eliminate the deficit by the "middle of the next decade", [151] an aim which the Institute for Fiscal Studies (IFS) said would "likely require more spending cuts or tax rises even beyond the end of the next parliament". Labour's manifesto proposed increasing the Treasury's income by £49 billion per year as a result of taxation rises and increasing public expenditure "to its highest sustained level in more than 30 years". The IFS said that Labour's proposals "could be expected to raise at most £40 billion" and that Labour was planning to maintain a majority of the cuts to working-age benefits proposed by the Conservatives. [152] As a result of the election, the Conservatives lost their parliamentary majority, but remained in government as the largest single party in parliament. Gavin Barwell, Theresa May's Downing Street Chief of Staff, blamed anger over Brexit and austerity for the loss of seats. [153] The Labour opposition announced a plan to challenge further austerity measures and vote against them in the House of Commons. A Labour spokesman said: "We will be using the changed parliamentary arithmetic to drive home the fact that the Tory programme for five more years of austerity will not go on as before." [154]


The origins of the financial crisis

It is now almost five years since the onset of the most severe economic crisis to hit Europe since the 1930s. For many people in the UK, its onset was signalled by scenes of depositors queuing outside branches of Northern Rock, once a successful building society that had converted itself into a bank and expanded rapidly into the global financial markets. Unfortunately, with hindsight it is now clear that the expansion of Northern Rock was too rapid. As a building society, it raised money from its depositors to lend to those seeking to purchase a house, but only if borrowers could demonstrate that they had the ability to keep up the repayments. Its loans were limited by what it could attract in deposits. However, during the 1990s, freed from regulation by successive governments that were each competing to be seen as more business friendly, Northern Rock borrowed massively on the global capital markets. These vast sums were offered as loans to anyone wanting to buy a house, with only the most cursory checks as to whether they could repay them. Then, to hedge against this risky proposition, the bank wrapped up the expected stream of future repayments into complex financial instruments that it sold on the global markets. Those buying these ‘securitised loans’ realised that they were risky but they would hedge their bets, constructing even more complex financial instruments.

Unfortunately, as it soon became clear, few, if any, of those involved in these complex financial webs really understood what they were doing. 1 An increase in interest rates in the USA during the mid-2000s, where the same had been happening, meant that people could no longer repay the loans. The entire system rapidly unravelled, leaving those countries most dependent on financial services, such as the UK, facing the double burden of a collapse in tax revenues from the financial sector while simultaneously having to inject large sums of money into the retail banks, which were by now inextricably entwined with their much riskier investment arms, to stave off a banking collapse. 2 Those countries that had continued to invest in their manufacturing industry and had lower rates of home-ownership, such as Germany, were much less exposed. Elsewhere, there were some specific risk factors for economic collapse. In Greece, for example, it became clear that the published economic data had, for many years, been falsified 3 and the country faced a severe debt crisis, largely as a result of a failure to collect taxes. A neo-liberal government in Iceland had also deregulated the financial sector, allowing a small group of individuals bent on individual enrichment, some of whom are now serving prison sentences, to engage in reckless behaviour that brought the country to the brink of bankruptcy. 4 However, fundamentally, the problem was one of a failure to regulate the financial institutions, a point that it is necessary to reiterate as it often seems to have been forgotten. In most countries, including the UK, the problem was not one of unsustainable debt. Indeed, UK debt as a fraction of Gross Domestic Product (GDP) at the onset of the crisis was lower than in France or Germany, and far lower than it had been historically. 2


Preface
Austerity, a Personal History
1 A Primer on Austerity, Debt, and Morality Plays
Part One Why We All Need to Be Austere
2 America: Too Big to Fail?
Bankers, Bailouts, and Blaming the State
3 Europe-Too Big to Bail
The Politics of Permanent Austerity
Part Two Austerity's Twin Histories
Introduction to Chapters 4, 5, and 6
Austerity's Intellectual and Natural Histories
4 The Intellectual History of a Dangerous Idea, 1692-1942
5 The Intellectual History of a Dangerous Idea, 1942-2012
6 Austerity's Natural History, 1914-2012
Part Three Conclusion
7 The End of Banking, New Tales, and a Taxing
Time Ahead
Notes
Index

Mark Blyth


An epic and riveting history of New York City on the edge of disaster—and an anatomy of the politics of austerity that continues to shape the world today

• a Pulitzer Prize finalist for history
Fear City is one of Kirkus Review's Best American History Books for 2017
Fear City is an Amazon Best History Book for 2017
Fear City
is one of Publisher's Weekly's top ten books for 2017
Fear City
is a Publishers Weekly pick of the month
Fear Citywas named one of Amazon's top ten best nonfiction books for April 2017!
Fear Cityis a Publishers Weekly Staff Pick

When the news broke in 1975 that New York City was on the brink of fiscal collapse, few believed it was possible: how could the capital of the financial world go bankrupt? And yet the city was billions of dollars in the red. Bankers and politicians alike seized upon the situation as evidence that New York’s famous social liberalism was doomed to failure--and promised apocalyptic scenarios if the city didn't fire thousands of workers, freeze wages, and slash social services.

In this vivid, gripping account, historian Kim Phillips-Fein tells the remarkable story of the crisis that engulfed the city, transforming the largest metropolis in the United States and reshaping ideas about government throughout the country. In doing so, she brings to life a radically different New York, the legendarily decrepit city of the 1970s. Drawing on never-before-used archival sources as well as interviews with key players in the crisis, Phillips-Fein guides us through the hairpin turns and sudden reversals that brought New York City to the edge of bankruptcy--and kept it from going over.


The Politics of Austerity : A Recent History PDF

This book considers the relationship between public spending and public deficit and the varying successes and difficulties governments have had in recent years to balance the two. As the fiscal crash of 2007/8 turned into the Great Recession and tax revenues tumbled, public finances across the UK, the USA and Europe plunged into deficit. Controversial attempts by governments to balance their budgets, commonly described as austerity by critics, had mixed success, politically and economically. Michael Burton outlines how politicians tackled the worst economic downturn in over half a century, drawing on previous examples of deficit-reduction to see how governments managed public finances in recessions and where austerity worked and where it failed. This two-part book, which for the first time provides an historical context to austerity, analyses firstly deficit-reduction in the UK in the 1970s, 1980s, 1990s and 2010-2016, and then looks at case studies in Europe, the USA, Canada and Asia Pacific. The author concludes that with the ageing population placing greater pressure through health and pensions on the public finances of the developed world, politicians and their electorates will have to learn to live long-term with austerity.


So is austerity really ending?

“People need to know that the austerity is over and that their hard work has paid off,” Mrs. May said last October, though she offered few details about how quickly public service and welfare budgets would grow.

To be charitable, she was probably assuming that Britain would leave the European Union in an orderly fashion that would largely protect the economy from harsh shocks. Now, that does not seem as certain.

In almost any case, however, Brexit is likely to put a damper on economic growth, cutting tax revenues. That would seem to promise tighter budgets and additional problems for the poor, especially for young people, because living costs are likely to rise and aid money from Brussels for deprived areas will dry up.

And the Institute for Fiscal Studies has said the government would have to spend at least $16 billion above current projections to truly end austerity. And even that level of outlay, the group’s director told the BBC, might hardly be noticed.

“We’ve had 40 billion pounds of cuts to department spending and cuts of 30 percent and 40 percent to some budget items,” the equivalent of more than $50 billion, the director, Paul Johnson, said. Even if the chancellor were to stop cutting, he added, “it’s still not going to feel great in a lot of areas.”


Watch the video: Niall Ferguson: The Politics of Catastrophe (January 2023).

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