Pryce It's The Economy, Stupid

Economics for Voters
1. Auflage 2015
ISBN: 978-1-84954-879-3
Verlag: Biteback Publishing
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 400 Seiten

Pollsters are constantly worrying about our perceptions of politicians. What do their other halves look like? Who looks best when eating a bacon sandwich? Should they even be eating bacon sandwiches in the first place? For the voter, though, it all comes down to one thing: the economy. While good economic news can send popularity sky-rocketing, bad performance can blight a party's election chances for years. But, with policies often working with time lags, it's rarely clear who is responsible for what - especially when their stances on the biggest issues of the day - immigration, the EU, the NHS - are clouded in rhetoric rather than grounded in hard economic fact. It's the Economy, Stupid sets out to change al l that. This incisive, accessible guide explodes some of the most entrenched myths of British political debate. Does immigration help or harm our economy? Are austerity measures the best way to tackle a financial meltdown? Is the NHS in crisis? With answers to all these questions and more, this is essential reading for anyone who wants to know how their vote will affect their financial future.

Autoren/Hrsg.

Pryce, Vicky

Leseproben

CHAPTER 2 Balancing the Books or Reckless Austerity?
The crisis: whose fault was it?
YOU’VE PROBABLY HEARD the one about how the UK economy was going really well until Gordon Brown started squandering taxpayers’ hard-earned money and borrowed so much that he almost bankrupted us all. It goes as follows: just a few months after Brown became our unelected Prime Minister, in June 2007, the economy began to fall apart. A year later it was deep into the worst crisis seen since the Great Depression. Luckily, having waited impatiently for ten years to be PM, Brown chickened out of an election, even though he probably would have won it; he preferred the certainty of staying on uninvited to the risk involved in becoming our properly elected Prime Minister. That left him with ‘only’ three more years to drive the country into unprecedented debt before George Osborne, supported by Lib Dem Danny Alexander’s brain, came to the rescue. As soon as the letter handed down from the previous Chief Secretary to the Treasury was read out, informing the coalition that there was simply no money left, the new Conservative-led government took the tough decisions needed to start paying down the deficit to restore the world’s confidence in the UK. The coalition did something complicated about those greedy banks that nobody likes, too, whereas Labour’s Alistair Darling had given those same banks even more squillions in bail-out money paid by us, their poorer victims! Despite the dire predictions of many so-called expert economists, and the protestations of those who had helped get us into the mess in the first place, the coalition stuck to their guns and so now we can all see for ourselves how well their tough love has worked. At the time of writing, the UK is the fastest-growing economy of all the major developed nations. Hooray! Despite all the pain that was necessary to clear up Labour’s mess, and even despite the widespread distaste for a Cabinet with so many ‘Tory toffs’ in it, a grateful public rewarded the Conservatives in May 2014 with their first opinion poll lead for over two years. Ed Miliband’s Labour saw its poll advantage fall from a 16 per cent lead to low single figures as the economy continued to recover. As always, it’s the economy, stupid! So it’s a convincing story: Labour’s profligacy got us into a right mess and the coalition’s painful but effective medicine got us out of it. Speaking on BBC’s Radio 4 in June 2014, Lord Lawson, the veteran Tory ex-Chancellor, summed it all up: Clearly, the economy’s doing extremely well, and that is great news, that the recovery is going, across a broad front, very well indeed. George Osborne has, to his great credit – the Chancellor – been proved right, and his critics, whether among Keynesian economists or the Labour Party or the IMF, have been proved totally wrong, and this is good news for the British people.1 Or was it those greedy bankers?
There is another, less well-known, version of the story. It goes like this: in the 1980s, the Tories’ revered PM Mrs Thatcher reversed the even more revered Churchill’s maxim that finance should be ‘less proud and industry more content’. She and her friends in finance began to unravel the restraints that had long reflected Lord Keynes’s advice from the 1930s that casino banking should always be kept ‘expensive and inaccessible’. It was unwise to ignore such a formidable economist as Keynes. The bankers rose and industry fell. The creation of shed-loads of ‘funny money’ by casino banks let rip was, not surprisingly, extremely profitable and extremely dangerous for the economy. Although this unbalanced the economy towards higher unemployment and greater inequality, both Conservative and Labour governments were seduced by their dependency on the taxes from banks flowing into the Treasury’s coffers, not to mention the substantial direct bank contributions to the political parties themselves. It is little publicised, for example, that more than half of the Tory Party’s donations since the 2010 general election have come from individuals and businesses working in finance.2 New Labour had also sought to reduce its reliance on union funding by courting donations from financial institutions, which allowed the Lib Dems’ Vince Cable to say to great applause in the BBC’s 2010 pre-election debate between three would-be Chancellors, ‘Now they want to have another turn to get their noses in the trough and reward their rich backers.’ Financial bubbles can build up over decades. Reagan and Thatcher, as kindred neo-liberal spirits, set the direction for the deregulation of finance that continued through to the present century, with an increasing arrogance and belief in the efficiency of markets. A belief strengthened by sophisticated-sounding embellishments of new and apparently impressive academic proofs about ‘efficient markets’ from neo-liberal mathematical economists. Indeed, many of these economists became quite hostile to anyone who disagreed with them, especially other economists. So, through the final repeal of the USA’s 1930s Glass-Steagall legislation in 1999 – an important part of the regulation that had long prevented the traditional prudence of the retail banks becoming too contaminated by the speculative ventures of investment banks – restraints on speculative greed were swept away to serve the interests of big finance. To add to the momentum of the bubble’s long build-up, all sorts of exotic ‘parallel banks’ were deliberately set up just outside the reach of any remaining regulation, and in the new ‘financial markets are always efficient’ regime they were allowed to flourish. Banks, and other rejuvenated finance institutions, were raking in unearned fortunes by flogging off trillions in iffy debts to anyone unwise enough to take them on. Sometimes the activity of banks was what in any other walks of life would be called organised crime. For example, vital interest rates were fixed in close-knit inter-bank stitch-ups, and some even advised their own clients to buy junk assets and then made money from this by betting on the side that these investments of their own customers’ hard-earned money would go belly-up! If all this sounds far-fetched then go check it out by watching Charles Ferguson’s jaw-dropping documentary Inside Job about the origins of the financial crash. If it was a made-up slur, be assured that the banks, with all their financial clout, would sue; instead, it won the documentary film Oscar. With the ending of regulation and the removal of the protective barrier between casino banks and traditional high street banks, finance in the US and the UK became increasingly complex, with the creation of new and exotic financial instruments and the growth of myriad interconnections between finance institutions which, when mapped, resembled networks of brain neurons. Few, if any, really understood the complexities of this monstrous tumour. For those involved, both personal and corporate, their interests seem best served by just carrying on partying while profits could be made. Only a few wise observers such as Warren Buffet, who has amassed his fortune using the same long-term investment methods Keynes had used to such good effect, warned long before the collapse that highly complex financial instruments are time bombs and ‘financial weapons of mass destruction’ that could harm not only their buyers and sellers, but the whole economic system. Buffet was proved right. From mid-2007, serious debt default problems began in the US sub-prime mortgages sector, where huge volumes of mortgages had been sold to persons who previously would not have been deemed sufficiently credit-worthy. Sub-prime mortgages and many other dodgy and often fiendishly complicated financial instruments such as ‘derivatives’, often in effect bets placed on the fortunes of third parties, were then all mixed up together with more solid assets in ‘securitised’ packages of different types of assets and then sold on widely across the financial sector. This was all greatly helped by private sector ‘rating agencies’, employed by the banks themselves, granting ‘Triple A’ status to these pig-in-a-poke bundles, known as collaterised debt obligations, or CDOs. CDOs in effect hid the real risks and facilitated a massive growth of newly created asset/debt bundles with over-inflated values. These were then used as collateral to create even more funny money – using other people’s money for your own bets is called leverage – and so the debt bubble grew. It looked like growth, it felt like growth as it produced income for bankers and tax for government, but it was as fragile as a house of cards. But was Brown blameless?
No. He and Ed Balls did nothing to reverse the liberalisation of banks. As we saw in Chapter 1, it was also true that for a short while before the crisis Gordon Brown was running what economists call a structural deficit. This is when the government is a net borrower even though the economy is growing at or above its normal trend level. This is generally frowned upon by all economists, as government debt should be repaid in the good times so as to save up ‘fiscal ammunition’ for the bad times, and as government borrowing can help fuel credit bubbles as the government both spends the money it borrows and leaves a gilt-edged IOU in the economy that can be used as collateral to create more loans. Although much of the borrowing went to sound investments, most economists regarded this structural...