Ideas Humpty’s Refrain: Four myths behind the coalition cuts

In a devastatingly forensic new piece, Samuel Grove takes apart the coalition's economic case for public sector cuts which have, he argues, nothing to do with economic imperatives and everything to do with ideological dogma.

Ideas, New in Ceasefire - Posted on Thursday, March 17, 2011 0:00 - 6 Comments

Share

By Samuel Grove

One of the more disconcerting passages of Lewis Carroll’s Through the Looking Glass is Alice’s meeting with Humpty Dumpty. After a series of confused exchanges prompted by Humpty’s apparent refusal to make himself understood, the conversation settles on the meaning of words:

‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean—neither more nor less.’
‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
‘The question is,’ said Humpty Dumpty, ‘which is to be master—that’s all.’

This extract is popular among dissident intellectuals, however we need not subscribe totally to Humpty’s bleak reduction of language to power. Human beings are capable of using words in an objective and reasonably impartial manner. Nevertheless, I was reminded of Humpty’s refrain recently as I was reading through a selection of George Osborne’s speeches; speeches in which he was attempting to justify the deepest public spending cuts in a generation. Osborne’s use of language, it turns out, is as confused as Humpty’s—and no less disconcerting.

Science and Morality

In a talk back in 2009, Osborne outlined the economic principles that would underpin a future Conservative government. He appealed to the latest research coming out of the economic and social sciences. These sorts of appeals are not sufficient in themselves to overcome Humpty’s language/power bind. In spite of a certain amount of physics envy not least from the economics school that has had a powerful influence on Osborne himself, economics is not a science.

To begin with science deals with relatively simple questions abstracted from complex reality including human affairs. Scientific terms acquire their specificity in the context of this abstraction. Economic terms, on the other hand, don’t follow deductively from an explanatory theory; they are rooted in human relations. The validity of economic terms derive as much from their underlying moral presuppositions as their technical precision and the first question we always need to ask of these terms is who they purport to concern.

Osborne is keen to stress that his arguments are constructed in the interests of everybody. ‘Fairness’ is a ‘‘guiding principle’ of this government and the anchoring concept of the spending review. This provides a test for Osborne’s use of language; a test, given Osborne’s moral professions, that is quite straightforward to carry out. For the sake of brevity I have focused on the four key terms of his argument; the economic crisis, the debt that was supposed to have caused the crisis, the welfare spending which is at the root of the debt and the cuts that are supposed to rescue us.

i) Crisis—whose Crisis?

Osborne begins his analysis by outlining the margins and extent of the economic crisis. He does this in order to rebut the emerging view on the left ‘that the financial crisis is also a crisis of markets in general.’ Over the last thirty years, he argues, open markets across the world have delivered ‘awe inspiring increases in living standards’. He uses the example of India in which trade liberalisation has ‘done more to raise the living standards of more people than any other government policy in the history of the world.’

Osborne is referring to increases in GDP per capita; an accounting framework that, even on narrow statistical grounds, is shamelessly dishonest. Economic growth is not a poverty index. Indeed it is possible and even common for increases in growth to coincide with rapid increases in poverty. South Asia, for example, has been the site of rapid economic growth in recent years, but is also where most of the world’s poor are concentrated.

Even India, Osborne’s ‘economic miracle’, dropped to 126th in the Human Development Index during the years of market liberalisation. India is just one element of a global crisis; a crisis that took a stark turn for the worse in 2007 when the food crisis pushed ‘250 million new people into food insecurity and starving, and brought the world total up to over a billion people.’

Today some $1.44 billion live on less than a dollar a day. Severe problems affect the so called developed world as well. In the US the average income for 90% of the population is actually smaller than it was in 1980.

Likewise in Britain levels of inequality are now on a par with the Victorian era, as even Osborne concedes. When Osborne speaks of a crisis that began in 2008 he is referring to a very brief moment when the perpetual crisis of free markets briefly threatened to envelop the super rich. This quickly subsided however once it became clear that the crisis was actually precipitating even greater wealth increases for the super rich than before 2008 (see Britain, the US, China and India).

ii) Debt—whose debt?

Delve deeper into Osborne’s analysis and it transpires that the crisis is not a financial crisis at all, but a debt crisis brought about by 13 years of overspending by the Labour government; over spending that has burdened Britain with the ‘largest deficit in the G20’. Osborne strategic use of the term ‘deficit’ (government overspend rather than the amount the government actually owes) disguises the fact that the UK’s national debt is the second lowest in the G7 (lower than Italy, France, Japan, Germany and the United States).

Osborne’s disingenuousness regarding the ‘debt’ gives way to a flat dishonesty with regards to the causes of the debt. In fact government spending under Labour tracked that of previous Conservative governments until the financial crash in 2008. The financial crash and the ensuing contraction in the private sector increased the burden on benefits which the Conservatives are now claiming is unsustainable.

Meanwhile Osborne is keeping remarkably quiet about the bank bailouts. These included some £76bn in Royal Bank of Scotland and Lloyds TSB shares, £250bn in guaranteeing wholesale borrowing by banks, £280bn in insurance cover for bank assets and all totalling up to an incredible £850bn. In Osborne’s terminology this is a public debt.

iii) Welfare—whose welfare?

Osborne’s argument that economic growth and our future prosperity relies on cutting welfare spending and rolling back ‘big government’ places him firmly in the neoliberal tradition of Milton Friedman and Friedrich Hayek, a pair frequently contrasted with the economist John Maynard Keynes who had argued that a large state sector was necessary to regulate markets. In fact neither Hayek nor Friedman was opposed to big government and neo-liberalism has always remained committed to financial welfare in order to save the market from itself. The bank bailouts were not inconsistent with neoliberalism but indicative of its fundamental principles:

One of the basic pragmatic principles that emerged in the 1980s was that state power should protect financial institutions at all costs. The principle, which flew in the face of the non-interventionism that neoliberal theory prescribed, emerged from the New York City fiscal crisis of the mid-1970s. It was then extended internationally to Mexico in the debt crisis that shook that country to its core in 1982.

Put crudely, the policy was: privatise profits and socialise risks; save the banks and put the screws on the people (David Harvey, The Enigma of Capital, Profile Books 2010, p.10).

Neoliberals aren’t simply committed to financial welfare. In the 1980s Ronald Reagan ran up huge deficits on corporate welfare while cutting back on payments to the population. In Britain the Conservative and Labour governments devised together their own corporate fleecing scheme with the Private Finance Initiative (PFI).

Ostensibly PFI is a public private partnership; in practice firms have been allowed to devise the projects, dictate the terms and set their own price for the UK taxpayer. This has led to some of the most shocking and bizarre scams imaginable. The Conservatives have remained silent on the corruption and profligacy of Labour in this department while moving steadily to extend the reach of private companies in the public domain.

iv) Cuts—whose cuts?

On numerous occasions Osborne has criticised Labour for failing to come up with an alternative plan to the cuts. ‘We know everything about the cuts Labour opposes’ he said ‘but nothing about the cuts it supports’). Labour’s impotence on this question should not be interpreted as evidence of a genuine lack of alternatives.

The argument that the left is ideologically opposed to cuts in public spending is simply not true. The question has always hinged on where the axe should fall. It is already clear the government could save a great deal of money simply by abandoning corporate welfare; welfare that extends to the military realm with private military firms having been ‘spared the knife’.

Since the formation of CND in 1957 there have been calls for unilateral nuclear disarmament. This re-emerged on the political agenda recently with the question of the renewal of the UK’s Trident missile programme. Were this to be scrapped it could save the tax payer as much as £130bn. More recently principled opposition to the wars in Iraq and Afghanistan has been supplemented with arguments identifying the costs of occupation.

Finally the government could save a great deal of money simply by enforcing corporate tax law.

Which is to be master?

In Bertrand Russell’s estimations, the method of simply ‘postulating what we want has all the advantages of theft over honest toil’. The ascription of “technical terms” for phenomena we don’t “technically” understand fits neatly into this tradition.

If it was not obvious before the 2008 crash that economics is not a science, it was after it. Even Alan Greenspan, the former head of the Federal Reserve, who had spent his career treating economics as a hard science, was forced to concede flaws in his economic “theory”.

This is to put the matter mildly. Dan Hind was probably closer to the mark when he likened the failure of economists to identify the largest real estate bubble in history to physicists ‘pushing an elephant up the stairs of the physics department and then express[ing] surprise at what happened when they heaved it off the roof.’

Hind is a political commentator rather than economist, so perhaps his conclusions are easy to dismiss. Economists themselves are more difficult to ignore. If science is defined by its ability to forecast the future’ Joseph Stiglitz wrote ‘the failure of much of the economics profession to see the crisis coming should be a cause of great concern’. Stiglitz remains committed to the idea that economics can at least attain an adequate degree of description and offered hope that the crisis would initiate a paradigm shift in economic thought.

‘The fall of Wall Street’ he declared ‘is for market fundamentalism what the fall of the Berlin Wall was for communism’. Naomi Klein repeated Stiglitz’s analogy but with a simple revision; she inserted the word—“should”—at the beginning of the sentence. Klein is more disposed to seeing ‘economic theory’ as a weapon of class war and was therefore highly sceptical of the notion that free market theory had been falsified.

Nonetheless her analysis succeeded in making a solid prediction. In an article in the Guardian back in 2008 she wrote:

…nobody should believe the overblown claims that the market crisis signals the death of “free market” ideology […] rest assured: the ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis that will be the rationalization for deep cuts to social programs, and for a renewed push to privatize what is left of the public sector.

Osborne has packaged the proposed cuts with vapid appeals to ‘difficult choices’ and vacuous claims that we are ‘all in this together’. In one of his more outlandish rhetorical flourishes Osborne even dared to suggest that the cuts would ‘deliver a fairer society’. It will not. The cuts are, as David Wearing put it, ‘one of the greatest single social injustices of the post-war era in domestic politics’ particularly for the poor, women, the disabled, the young and the old. In other words the population, save for a very narrow, and very rich, elite. If Osborne is trying to make himself understood, it can only be on the assumption that his audience already knows the answer to Humpty’s question.

Samuel Grove is a writer and activist.

Share

6 Comments

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Sebastian
Mar 17, 2011 15:25

Sounds a bit cynical. I doubt that the politicians themselves consciously want to increase the inequality. Osborne is probably doing what he believes is good for the economy. It is clear to you or I that the free market ideology has many huge flaws, but to these people it is not clear at all. They believe the current failing to have been caused by the state interference and regulation.

Although on the bright side, I was at a talk in Oxford a couple of months ago by a prominent libertarian economist Mark Skousen. To my surprise, he conceded that the financial markets have been underregulated. But he does stick to his mantra of liberty to do with personal property as one pleases and the overall efficiency of the markets.

The efficiency of the markets is really what it all comes down to. Libertarians and free market folks claim the free market is efficient, while the rest of us claim it is not. The effect of libertarian principles being put in practice is devastating, but let’s hope that people realize this sooner rather than later.

nathan
Mar 17, 2011 15:28

Good article, but can you explain what a deficit is, if it is not debt, and why having a big deficit is not as important as being in debt?

Mark Crory
Mar 17, 2011 20:21

Great article, Osbourne’s likeness to Humpty Dumpty is staggering, almost as staggering as the Conservatives lack of respect for the intelligence of the general public.

Samuel Grove
Mar 18, 2011 1:56

Thanks for the comments.

@Mark
Cheers mate and agreed.

@Nathan

The deficit is how much more the government is spending than is earning (in tax revenue). The debt is what has to be paid off.

Osborne shifts between talking about the deficit and the debt depending on the uses. In an article in the Guardian he links to an article on the institute for fiscal studies website which indicates that our debt is not as large as our deficit relative to OECD countries. When Osborne talks about the “largest debt in our history” he means in cash terms (which is utterly meaningless). As a % of GDP our debt is the second smallest in the G7.

This video is very much worth watching:
http://www.youtube.com/watch?v=AQYfPhtWpy8

At other moments (and perhaps i should have dealt with this at greater length in the article) Osborne talks about the “structural” deficit. I assume he is doing so for the following reasons:
i) To give the impression that the actual deficit is down to Labour profligacy and not the bank bailout
ii) To give the impression that the deficit won’t change with growth.
iii) By using the word “structural” we are led to believe that the deficit is “entrenched” and requires a massive overhaul

None of this is true. I responded to the 1st point in the article. Regarding the 2nd point it is basic economics that you look to stimulate the economy in time of recession. As I hope I have made clear—all sides actually agree on this. The question is not—stimulus or no stimulus. The question is who the stimulus will go to. To the private sector in the form of corporate welfare, subsidisation, bank bailouts and so on; or through the public sector which has a redistributive effect because it actually reaches the population at large. You might not hear it being described as such in the business press but apart from being “just” the welfare state (state pensions, benefits, services etc) is a “structural” stimulus package which saves the economy from the “structural” inefficiencies of the market.

If you want a good idea of the “structural” inefficiencies of the market then simply look at what has happened in Ireland. At any rate this isn’t about what is good for the economy (as long as by economy you mean the economic wellbeing of the population).

Which brings me on to Sebastian’s point.

“I doubt that the politicians themselves consciously want to increase the inequality. Osborne is probably doing what he believes is good for the economy. It is clear to you or I that the free market ideology has many huge flaws, but to these people it is not clear at all. They believe the current failing to have been caused by the state interference and regulation.”

I will leave others to judge whether Osborne or anybody else is actually committed to free markets. At any rate to get bogged down in questions regarding “what is good for the economy” just confuses matters. It isn’t—as I have tried to show in the article—a valid point of departure. Without wanting to repeat the argument in the article—the question is—what does Osborne mean by the “economy”?

This isn’t a psychoanalytic/psychological/psycholinguistic/philological question. It is a political question (i.e what relations of power underlie Osborne’s statements).

On the narrow question of inequality’ I don’t think he cares. I think he is carrying out the policies of his constituencies. Nothing particularly surprising about that.

On a broader level I don’t know whether you are trying to make a trivial or substantial point. I hope I am not coming across as offensive here.

If you mean the point trivially—sure. When people do heinous things they often go to great lengths to convince themselves (and anyone who will listen) that they are driven by high moral standards, that what they are doing is for the greater good and so on. We don’t need to rehearse the deconstructions of Blair’s memoirs to realise this.

It might be that you are making a more substantial point; that our current malaise is a product of genuine miscalculations by earnest economists and politicians. It is a very grave error, I think, to view this in terms of ‘intellectual’ or ‘theoretical’ differences. It represents a fundamentally mistaken view of our economic and political institutions, the operations of capital and, above all, the function of government—particularly in the neoliberal era.

Robin
Mar 19, 2011 1:15

Excellent article, Sam – well structured argument. Do you think it is fair to say that Osborne et al have such a blinkered awareness of [their] class that when they talk of ‘us’ who are ‘in it together’ they are actually talking about rich white people who have Range Rovers and went to private schools? Perhaps he just doesn’t actually realise that some people have never even been skiing. Maybe he isn’t being disingenuous.

Regarding the issue of Victorian levels of inequality – what’s the point of being a Conservative if you can’t return to how things were in 1898? (I think Boris johnson said something similar recently about having to dress up in Edwardian costume or something). PS – found the quote – ‘If you can’t turn the clock back to 1904, what’s the point of being a Conservative?’ http://www.london-se1.co.uk/news/view/4722

Ryan
Mar 26, 2011 1:33

Hi Sam,

Really really good article, very informative. Thanks!

This is the kind of easy to understand but vital analysis that is shamefully – though unsurprisingly – absent (with rare but notable exceptions) from the mainstream media.

Have you read Thomas Ferugons’ The Investment Theory of Politics? I saw a report last month, maybe even Jan, that over 50% of Tory funding comes from the City. Obviously these people expect to be paid back – and then some.

Leave a Reply

Comment

 

More Ideas

More In Politics

More In Features

More In Profiles

More In Arts & Culture