RIP Austerity?

It is the intellectual debate which has defined our times; indeed, it has defined a greater part of my life on this planet. It isn’t the moral maze of non-platforming or any other culture war battleground we all have opinions on. No, it’s that old chestnut of ‘austerity.’

On this island, David McWilliams proudly proclaimed a RIP to austerity this week on his podcast. He is a part of the Irish austerity story, spotting early on the problems in the property market he used his newspaper articles to highlight the issues long before the crash in 2008. Since then he has tried to dispel the ideology of austerity.

It must be highlighted at this point that austerity is an ideology. We chose to elect governments, they chose to support policies and western elites followed lock step into the austerity spiral. All we are left with is a resurgence in 20th century style populism (they are still a bit clumsy with 21st century tech) and a destruction of the social fabric.

In the last great economic debate of the 1930s it looked like Keynes had won the day, money is an issue of supply and demand. It should not be constrained by metal prices or by slavish following single metrics like inflation. With quantitative easing, low to negative interest rates and buy-back schemes central banks have injected cash into the economy through one funnel.

That funnel is monetary policy, it nearly exclusively depends on a financialisation of the entire economy. The only metric becomes “balancing the books” in the immediate here and now. In Greece it saw ports being sold to private German companies and a nostalgia for the ‘shock therapy’ policy which destroyed Russia at the end of the Soviet Union – pushing people there into the arms of oligarchs.

Fiscal responsibility will always plague national governments, there is no disputing of this. However, in an age of dramatically low inflation and where consumer behaviour has never been so predictable it is fair to say that policy makers had been a bit wet up until the COVID crisis. Tom Kibasi calls it the ‘zombie ideology’ as chancellor Rishi Sunak attempts to revive austere thinking:

Both the International Monetary Fund and the World Bank now advocate for fiscal activism rather than restraint.

Yet despite this radical shift in the economic consensus – and the continuing fight against the virus – the chancellor has already attempted to cut back the levels of employment support before reversing course again. The job support scheme incentivises employers to cut jobs rather than hours; the revived furlough scheme is more targeted by geography and sector. Economic policy has consistently been on the back foot during the crisis.

Hopefully now we can move away from the politics of inevitability which I believe are why the ‘remain’ side lost the referendum and why Hillary Clinton lost the white house in the same fateful year of 2016. It is part of an elitist mentality that takes for granted the great achievements of the EU or of why a wealthy and connected person should command high office.

Instead of selling such ideas to people the political class treated it as an inevitability. But the people have now rebelled, if the left want to make anything from this new paradigm it must be in the embrace of radical and creative solutions. Labour quite early on spotted the political opportunity in pressing that furlough be extended. The financial taps are switched on, it’s time to use them.