Austerity---my foot!


There is much beating of breasts about the hardships we are enduring. And in some countries---Cyprus, perhaps---things really are tough. But it is difficult to believe that in contemporary Britain the bulk of thre population is suffering greatly. City centres are crowded, sho;s are full, football matches are well attended, public events draw many on-watchers, private activities continue much as they did heretofore. A significant indicator is the consumption of bottled water. Bottled water is expensive. A cheaper alternative is readily available: in many areas the tap water tastes just as good as water from bottles, and even where it tastes nasty, it is potable and perfectly safe to drink. Those who buy bottled water are not pinched for pennies. The same goes for food. One quarter of the food bought in Brritain is thrown away uneaten. A lot of people are far from the bread line.

It does not follow that nobody is badly off. Makers of luxury yachts may well be suffering from a slump, and it is a proper concern of public policy to ease their lot. But most people are not in dire straits. Economists say that the Gross National Product (or the Gross Domestic Product) has dropped by 3.5%, and are fearful of a triple-dip recession. But if the Gross National Product has dropped by 3.5%, it is 96.5% of what it was. If my income is only 96.5% of what it was, I am not destitute. I may have to go without some luxuries. I may have to postpone some expenditures. But the retrenchment will only be mild, and I shall be able to continue living in much the same was as before. And the Gross National Product is an inadequate measure of well-being. Even without more money in my pocket, I am better off than I used to be. Trunk calls on the telephone used to cost one shilling and three pence for the first three minutes: now they are virtually costless. A computer used to cost more than a thousand pounds, and now only some hundreds. Mobile phones abound, as do blackberries, I-pads and I-pods. Over the last ten years it has become possible to detect minute amounts of antibodies in blood samples, with the result that cancers can be spotted and treated earlier and more effectively. In many different ways we are all better off than we used to be, and are not leading austere or impoverished lives.

The ``trickle-down effect is denied by a noisy lobby who make out that the poor have not benefited at all from the prosperity of others. The claim depends on confining ``benefit'' to money alone. Then, somewhat unsurprisingly, the poor may not get richer simply because others do. But they do become better off. At the beginning of the twentieth century cars were a luxury only the very rich could afford. By the 1930s they were affordable by many in thr middle classes, by the 1960s by many in the working classes, and by the end of the century many poor people had come by a banger which enabled them to drive to work.

Talk of austerity and triple-dip recession generates a fog of gloom which clouds clear thinking. Most people have never had it so good. It is only by setting up false standards and ignoring obvious truths that we are induced to feel depressed. That the Gross National Product is only 96.5% of what it was is not in itself bad news, but is made to seem bad if it is taken for granted that the Gross National Product ought to be growing. But that is not something that should be taken for granted. It is something that should be argued for and can be argued against, and something that while being true for some sectors at some times in some circumstances, may not be true for other sectors at other times in other circumstances

The argument that increasing the Gross National Product is a good thing seems compelling: every economic transaction benefits both parties---else they would not engage in it---leaving both of them better off than if they had not done business with each other. Therefore the more transactions that take place, the more people there are who are better off. And throughout most of history this has been true. Throughout most of history most people have been poor and in want of many goods and services we enjoy. Life was better if corn was exchanged for wine, wool for spices. But although business transactions benefit both parties, they are not cost-free: they take time, and put a particular perspective on the relationship. Time spent in the office making money is time not spent playing games with the children, not spent with the cricket club, not spent painting with water colours. And although business transactions are engineered to bring benefits to both parties, it is built into the relationship that the interests of the parties are different and not shared. I go to the office not because I naturally want to, but in order to make money; but the good life consists largely in doing things I really want to do, often in company of others where we together do what we want to do. Sometimes it may be worth sacrificing togetherness for greater individual benefit; farmworkers had a great sense of shared achievement as they celebrated harvest home at the beginning of the twentieth century, but the few agricultural labourers who drive their tractors now are well-paid and far better off. Yet there are losses, and as affluence increases, the need to incur them becomes less imperative. I might be ready to forgo being able to have that extra tin of lobster pate' in order to go on an environmental walk or show up at the village's monthly coffee morning. . It follows that it is only a contingent, not a necessary, truth that growth is good. It may be that the booms and slumps of the business cycle are needed; booms encourage new ventures, and produce a proliferation of start-ups, some of which would never have got off the ground in normal times; and then the slumps cull businesses, old as well as new, weeding out those that are not making good use of thr resources they consume. It may be hard on those displaced, but it is better that they should be redeployed so as to make more efficient use of their abilities; the alternative was to be seen in Soviet Russia, where inefficient factories lingered on, producing less in output than the resources they consumed.

Once we rid ourselves of the superstition that growth is a must, we can take a balanced view of our actual situation. It may be that we ought to aim for further growth, but that needs to be argued for. What is lodged in many people's minds is that Keynes argued for it in the 1930s, and what he said goes. But what he said then may not go now. Keynes General Theory criticized the then current orthodoxy that held that the state of an economy was determined by the price of labour. Against this he maintained that there were a number of different levels at which an economy could run satisfactorily, not just a unique determinate one, and that we could exercise some degree of choice about them. The negative point was sound. The argument for the view attacked was oversimplified, and ignored many relevant factors. And if there did not have to be one determinate state of the economy, there could be many, each depending of a variety of factors, some of which might be amenable to choice. But it did not follow that we could just choose. Our choices might be constrained by further factors not under our control---the opinions of foreign currency dealeers, the educatiion of the local labour force.

Keynes was writing in the aftermath of a severe deflation. The British Government had tried to go back to the pre-war parity of the on the gold standard, and Keynes believed that British goods had been priced out of the international market, with high unemployment as a result. We can agree that severe de-, or in-, flation is bad, but it does not follow that even very slight deflation is to be avoided at all costs. It could be argued that a deflation of 1% a year was the best way of distributing the fruits of growing prosperity. And if it was not continual, but alternated with inflation, so as to keep the stable, though fluctuating within a 2% limit either way, it would be difficult to maintain that the deflationary part of the exercise was peculiarly abhorrent.

The credit rating of Great Britain had been unassailable for centuries. It seemed reasonable that the Government, like other well established private institutions, should take the opportunity of improving their facilities at a time when it could be done at low cost. Moreover, money spent on employing the unemployed, even if there were no long-term benefit, would revive economic activity as it percolated through the system. Even if they were only digging up bottles, the wages paid to those who dug would be spent by them almost at once, thus boosting the takings of inn-keepers and grocers, enabling them in their turn to spend more, thus stimulation economic activity in a widening circle.

But things are different now. Hard-up families now may not spend their wages, as Keyens supposed, but use them to pay off a credit card debt or stave off repossession. The credit ratings of the British and American governments are open to doubt, and they no longer can aim to concentrate long-term expenditure into recessionary years. In any case it is far from clear that money spent by the government on infra structure is money well spent. In the 1930s the British Government provided work for the unemployed by employing them to build ``railway by-passes'' in Wiltshire and Somerset, but the work could have been more efficiently and cheaply done by ordinary contractors. Politicians often prefer showy projects to more worthwhile ones. And even if projects are chosen for entirely high-minded reasons, the fact that they result in tax-payers' money going into contractors' pockets may give rise to suspicions highly damaging toAiling industries cannot go on beingncosseted, but must be made to release their resources for bettr use elsewhere. public trust.

It is sometimes argued that the monetarist criticisms of Keynes offer no coherent alternative, which may be true, and so are themselves defective, which does not follow. It is also said that were he still alive, Keynes himself would not be a Keynesean. May be. We do not know. All we can sensibly do is to look at the arguments advanced by Keynes, and consider whether they hold good in today's different circumstances.

The level of economic activity is not definitely fixed, and there may be several possible ones, some amenable to choices we can make. But we cannot just choose. Our choices are subject to pressures, and themselves have consequences that should weigh with us. We need to be clear sighted, and distinguish the economic question of what level of activity is right for the economy from the political question of how to deal with the consequences of our decision about economic affairs. It does not do to try to run the economy so that there is no unemployment. Stagflation and strife are the result. But it does not follow that we should do nothing to help those thrown out of work. What does follow is that this is a political question, to be discussed in political terms, and financed out of current revenue as one of the things we want to spend money on. Money spent on job-seekers' allowances or unemployment benefits is either money not spent on the Health Service, national defence, and education, or else money raised by additional taxation.

Some unemployment is temporary. The shipyard closes, and the skilled riveter is out of a job. But he is skilled, and soon will get another job as a machinist turning out wheels for super-market trolleys. Reasonable replacement of his former income is what is needed to tide him over until he can find another job. The long-term unemployed are different. Some, no doubt, should simply get on their bikes, and find a job elsewhere. But many are too old to relocate easily, and few alternative jobs are likely to develop of their own accord in decaying pit villages. Others are unemployed because they lack useful skills or the willingness to work. Different causes of unemployment need to be addressed differently. People can be paid to do work, perhaps only within commuting distance of where they actully live, which is socially useful even if not marketable in exclusively economic terms. The removal of slag heaps from mining districts, the clearing of rubbish from towns, and of litter from the verges of roads, are beneficial, and a sensible use of otherwise unemployed labour. But there is a limit to such useful activities, and though useful, not in themselves very rewarding. We may need to go further, and develop a ``high-gardening society'' in which not only municipal corporations, but all public, and most private, institutions display lawns and flower beds for all to see. More generally, it would be desirable if there were more jobs available into which the hitherto unemplyed could ease themselves. Although it is unfashionable to say it, rich people can benefit the poor by being rich. Because they can afford to indulge expensive tastes, they create a market for services and goods which the poor can provide. If I am rich I can pay someone to rake the gravel on my drive, which I could not afford to do were I short of cash. In recent years in Britain the affluent elderly have paid youngsters to walk their dogs, providing employment for the otherwise unemployable unskilled. In America similarly unskilled workers could be shoe-shine boys; it was not much of a job, but better than nothing. Long ago it was the received wisdom that the important thing about footmen was that they should be tall and have good calves. Now it is the exceptionally short man who can find employment as a jockey riding the rich man's horse in a race. And not only jockeys. A large industry of trainers, stable girls farriers, vets nd commentators thrives on the pickings that fall from the rich owners' tables. The rich have also obliged by buying up football clubs and engaging in regattas and sailing races. But there are still sports in need of rich patrons: ice hockey, lacrosse, American football; any takers?

Sport is not the only non-economic activity that can provide employment. Tourism and sight-seeing generate a lot, as also concerts, theatres, public lectures and discussion groups. Once we free ourselves from the fetish of that economic activity is the only thing that matters, we obtain a much better balanced picture of what our society actually is and how it may be improved. For the most part it is a prosperous one, all the more so for not being fixated on economic activity alone. But this is not to deny that there have been losers, or to make out that the measures so far outlined will be enough to solve all problems. There still remain the unskilled and unwilling; they can, up to a point, be trained and motivated by job-seeker schemes, and a benefits system which discourages idleness while not penalising the ill, the infirm and the genuinely disabled. There has been much discussion of these problems, and no satisfactory solution has yet emerged.

The fact that we have not reached political agreement about welfare does not show that the economy is in a state of crisis. The only crisis is a government crisis due to its pursuing policies opposite to those it should be following. It should be balancing the budget, maintaining a stable currency and allowing interest rates to rise to their natural level, which would enable entrepreneurs with profitable schemes to borrow what they need to get started, while making those in debt pay a proper price. To go on borrowing (``Deficit Reduction'') in the hope that something will turn up from growth, is Micawber economics, leading quickly to disaster when nobody is willing to lend with the prospect of being repaid in quantitatively eased pounds. The Government's policies mask the awkward and sometimes painful realities that individuals and institutions face in their business dealings, but reveal no understanding of economics or willingness to get to grips with real problems. The only message that comes through when ministers talk about kick-starting the economy is that none of them ever owned a motor bike.