Friday 30 July 2010
Johann Hari: Cameron's cuts will kill, not cure
To preach austerity as the solution to depression is the equivalent of drilling holes in your head to cure your migraine while dismissing aspirin as for wusses
Sometimes, the most urgent truths are rolled up and hidden away in the most apparently trivial news. So if I tell you that Moody's, the leading credit rating agency, has downgraded Ireland's debt, it sounds pretty irrelevant. In fact, if you unwrap and decode this story, you'll discover the reason why you are going to be more likely to lose your job or your home soon – and how David Cameron is rapidly ramping up the risk.
George Osborne visited Ireland a few years ago to say it was a "shining example" for Britain to follow. When the recession hit, the country's government immediately applied the medicine Cameron and Osborne are now imposing on Britain. They argued that when the economy withers, the Government needs to react like any responsible family and cut spending to pay down its debt. They warned that if they didn't do it fast, the international bond market would charge Ireland more for its liabilities, and the debt burden would become intolerable. Better to purge now so you can get back to fiscal health as soon as possible. "Look and learn from across the Irish Sea," Osborne said.
So they have brought this vision home. During the election campaign, Cameron promised that his cuts wouldn't be "swingeing" – but in power he is ordering cuts of 25 to 40 per cent in almost all departments. To give you a sense of how drastic this is: Margaret Thatcher actually increased public spending by 1.1 per cent in real terms per year.
We are in a strange hush while the axe is suspended in the air above us. If you read the small print, you see the spending plans put forward by this Government of inheritee-millionaires will hit the poor first and hardest. The National Housing Federation says the number of homeless people will double as a result of their slashing of housing benefit. Half a million children living below the poverty line will have their free school meals – the only nutritious meal of the day for many – cancelled. The unemployed are having £6.50 knocked off the £65 a week they have to live on. Iain Duncan Smith says "tons of elderly people" are going to be forced out of their "underoccupied" council homes. The list is long enough for a dozen columns. One minister recently told The Times the rationale behind it off the record: "The undeserving poor," he said, "are undeserving." Meanwhile, a recent Financial Times headline summarised the situation at the other end of the economic heap: "Well-paid breathe collective sigh of relief."
Before power, Cameron promised his cuts would not affect "frontline" services, but only the "backroom" and "waste". Now NHS bosses have drawn up plans to slash hip operations, cataract surgery, and the number of acute hospital beds. All frontline services are facing similar shut-downs. When David Cameron promised he wouldn't get rid of free bus passes, who knew it was because he would get rid of the bus instead?
A detailed study for Oxford University led by Dr David Stuckler calculates that there will be 38,000 premature deaths over the next decade as a result of all this – due to the reduced healthcare, dismantled services for the elderly and vulnerable children, increased suicides, and so on.
The Cameroons say – yes, this is rough, yes, it hurts, but it is for a necessary purpose. If we don't do it, the bond markets will downgrade our debt and we will be even worse off. Only austerity can hold off the prospect of a debt crisis.
So let's return to the truth buried in that little story on the financial pages. Ireland has been doing exactly what Cameron and Osborne urge, with a two-year headstart. What are the results? Last week, a study by the International Monetary Fund – nobody's idea of a left-wing pressure group – found that country's economic collapse now "exceeds that being faced by any other advanced economy, and matches episodes of the most severe economic distress [anywhere] in post-Second World War history."
Why? During a recession, ordinary consumers quite sensibly cut back and spend less. But if the Government does the same, it means nobody is spending. This is bad enough for all the people who suffer immediately: the swelling army of the unemployed, the repossessed, the abandoned. But it turns out that it makes its original goal – paying off the debt – impossible too. As the Nobel Prize-winning economist Joseph Stiglitz explains: "If you introduce austerity measures, the amount you can raise in tax falls, and welfare payments go up – so you don't have enough money to pay your debts anyway."
That's why the bond markets have turned on Ireland. The country introduced austerity to pay off their debts – and the austerity killed their economy, making it impossible to pay off their debts in any case. It was self-defeating. So introducing all these cuts doesn't only inflict misery; it doesn't even achieve its professed goal.
Why choose this as a model to copy? Another Nobel Prize-winning economist, Paul Krugman, writes that this deficit hawkery "isn't based on either evidence or careful analysis... What sounds like hard-headed realism actually rests on a foundation of fantasy." Krugman points out that they incessantly warn us that "invisible bond vigilantes" will beat us up if we don't cut, cut, cut – when the real bond market is beating up the people who have cut and left their economies to bleed out.
In 2010, to preach austerity as the solution to depression is the equivalent of drilling holes in your head to cure your migraine, while dismissing aspirin as for wusses.
Krugman, like most economists, says there is only one real way out. When consumer spending collapses, governments need to borrow and spend to prevent a depression – and then pay off the debt from the proceeds of growth once we have brought the good times back. It's revealing that the countries that have done this hardest and fastest – like South Korea, which spent a fortune on employing people to green the country's infrastructure – have been the first to pull out of this recession, while the countries glugging Cameron-juice have sunk deeper into the gloop.
Yet few people outside economics are making a full-throated defence of stimulus spending as an urgent moral cause. We need to say it loud: the choice today is between a deficit and a depression. It is immoral not to borrow and spend when it could revive the economy and prevent all these lives being written off. I remember what happened to some of my relatives in the 1980s. The children who are supposedly being protected from the cost of the debt a generation from now need, in reality, to be protected today – from their parents becoming jobless and depressed, their homes being repossessed, and their schools and hospitals being chronically underfunded.
None of this has to happen. The more fuss the British people make – the more we demand the axe is put away, and replaced with jump-leads for the economy – the less leeway the Government will have for self-defeating cuts. Protest needs to be focused on the Liberal Democrats in particular: they are mostly good people who do not want to be part of a Thatcher-on-mephedrone crusade. They have the power to pull the plug at any time. The more we spook them, the more likely that act of national self-preservation becomes.
Oh, and here's a financial tip to leave you with. If you hold any bonds in Cameronomics, sell. They are about to slip from the AAA standard accorded by the right-wing press to junk status in the real world. To borrow a phrase from Osborne: look and learn from across the Irish Sea.
Follow Johann Hari on Twitter at twitter.com/johannhari101
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