The Austerity Stakes

I never thought I'd live to see the day when a professional politician in a rich country would stand up and say: 'Vote for me and consume less!'

Well, I'm still more or less alive, and that was said the other day in Britain by one George Osborne – a Tory! He even embraced an on-coming 'Age of Austerity' by visibly attempting to repress a grin. 'We're all in this together!' he intoned, seven times over.

If opinion polls are to be believed, Mr Osborne will become Chancellor of the Exchequer (finance minister) in a Conservative government after a general election in Britain next May. Democratic turkeys will then be offered few options but to vote for electoral Christmas, because the Labour Government is saying much the same thing. Both have begun to compete in Austerity Stakes, because focus groups are said to be feeling like cancer patients in need of the truth.

All very well, were the diagnosis right. But it isn't.

Less than a year ago we were given to believe that incredibly large sums of public money, spirited in a trice as if from nowhere, were needed to save private financial markets. Otherwise our fate would have been unimaginable. So, around the world, governments borrowed if they could - from those very same financial markets.

Now the financial markets – prompted by the corrupt credit-rating agencies that helped to precipitate the meltdown in the first place – are demanding 'their' money back, at least from the bankrupted British Government. This means that the public must lose basic services, pay higher regressive (unfair) taxes and watch unemployment soar into the indefinite future, simply in order to pay financial markets for their own toxic debts.

The assumption that private financial markets will always be bailed out by the public made the meltdown possible. The fact that this has now duly happened, and on a grander scale than ever before, means that it is that much more likely to be repeated.

The cancer truly is in the physician rather than the patient. So the cure is unlikely to work.

After all, the entire retail banking business in Britain still relies on guarantees given to ordinary depositors by the Government - or rather, it rests on depositors' faith in government, since, in the event, it would be unable to pay - and is therefore a public utility already.

This should tell us something about the nature of finance. Bankers talk about 'their' money when it is not – it is their depositors'. They talk about 'their' loans, when they are not – credit is created by a public licence (and guarantees) to lend many times the deposits they hold. This is, if you like, the oldest confidence trick in the book, and it has its uses.

The conclusion, however, should be obvious. Finance is public, not private, by nature. If people don't have confidence in their governments, then they'd better set about getting a democratic grip – or remove whatever deposits they have from their private banks sharpish, preferably before anyone else.

In Britain, a huge chunk of the public debt is accounted for by the 'recapitalization' of private banks – by buying shares that would otherwise have been worth nothing at all. That is what should have been offered to put them where they belong, in public hands, along with those government guarantees to depositors. And that is the real value now of the public debt used to acquire them.

Revalued in this way, the public deficit would be slashed, thousands of jobs would be saved, vital public services retained and unjust tax hikes averted. An Age of Austerity might then become an Age of Possibility.

Any responsible government would also be arguing that less consumption does have a point, if it is properly organized (at last) to tackle climate change effectively and equitably - and to invest in a green economy, without which there will shortly be no human economy at all.

We'll certainly be told, with all due unction, that this is impossible, for fear of losing the confidence of financial markets. This tells us all we need to know about where the real power, and the real cancer, still lies.

In Britain we face the prospect of Dave Cameron as the next Prime Minister. He promises to send us all on a forced march up a mountain, and to provide a magnificent view from the top. Even if we made it, and shared his opinion of the view, the only way forward would then be back down to the bottom, where we started.

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