Ecomonomic lie number 3- austerity affects us all…


Back to my little mini series about economics. Don’t expect deep learned insights- I did study economics as part of a social science degree 25 years ago, but I was a very poor student. However, there are many approaches to economics- here are a few;

Technical/systematic- clever people who claim to understand the ebb and flow of the complex currents that move in the deep oceans of international finance. They know the difference between M1, M2, and M3. They advise the powerful and hold the fate of millions within their sterile computer generated models. Here, the economy is a desperately complex, ever changing thing, that is not just human in origin, it is supra-human. We are all subject to it, in the same way as the Ancient Greeks lived in the shadow of Mount Olympus. The gods are capricious, mysterious, vengeful and unmoved by ephemera. Our high priest-economists are expected to placate the gods, but they are after all gods and so there is the constant threat of earthquake wind or brimstone…

Political- I contend that most politicians know very little about point 1. They have to pretend they do, like the emperor and his new clothes. They have to pretend to be in control of the gods. They have to present deep ocean complexity in the form of simplistic decisions. All the better if the issue can be polarised, and if their are people/groups to be blamed. So we see two narrative techniques being employed at present-

  1.  The economy is constantly compared to a household spending plan. It has to be about prudence, good management, respectability- the image is a solid middle class family who budget carefully for their two holidays, their new sofa and retirement plan. Except that the economy bears no resemblance to a middle class household budget. Houses can not print their own money for a start. They can not set their own tax rates, they can not invest huge sums in education or health or in nuclear arsenals. And of course not all households are the same. Some are broken, bankrupt.
  2. The other narrative I have already hinted at- it is the narrative of blame. Our lifestyles are under threat from the fecklessness of the poor or the tidal wave of immigrants- the strivers are carrying all these skivers on their backs. We no longer talk about social class because stratification in our society has fragmented- but in case you are in any doubt, check out any mumber of tabloid newspapers- the Express, the Mail, the Sun. They are full of stories of benefits dodgers, single mothers getting posh social housing, dark skinned swarthy outsiders who are clogging up our hospital wards. For a while, the bankers got some mud thrown at them- but mud does not stick to shiny power for long.

The economics of justice- There is another approach to economics of course- one which both politicians and technical economists are aware of, some even motivated by- it is the analysis of the flow of capital from the poor to the rich, and the operation of the machine that makes this happen. It points us to the conquest of poor countries, whose raw materials are used to make the toys of the rich. It also points us to the remarkably persistent and stable gulf between the rich, healthy, educated minority and the rest- both globally and locally.  I make no excuse for this statement; these are the economics of the Kingdom of God.

Two stories sum up this gulf within the UK at the moment. Firstly, this one;

Lamborghini Veneno

The eurozone may still be in recession, but there is little gloom at the Geneva motor show, where Lamborghini, Ferrari, McLaren and Rolls-Royce have launched luxury supercars costing up to £3m each.

While European car sales dropped by 3.3m last year – the equivalent of a car company the size of Fiat failing to sell any cars at all – super-luxury cars are rolling out of the showrooms in ever increasing numbers.

“Most the world is suffering from recession, yet there are clearly people who can buy a Lamborghini at €3m (£2.6m) a pop,” said Paul Newton, auto analyst at IHS Global Insight. “Bentley, McLaren, Rolls are all doing well. There is clearly a market for the most expensive of cars, whereas the mass market manufacturers are nearly all suffering, especially in Europe. It’s the definition of a two-speed economy.”

Philip Harnett, product manager of Rolls-Royce’s latest €245,000 Wraith model, launched at the Geneva show on Tuesday, said that while the global economy was in the doldrums “some people are doing very well and they want to reward themselves”.

He said it was important for staff morale that high-flying company executives continue to buy the most luxurious cars. Executives told him that “the day I turn up for work in a Morris Minor is the day the staff will start to worry”.

(From the Guardian Tuesday 5 March 2013.)

Then, by way of contrast, this story;

Houses in Middlesbrough

One of the most acute concerns about the government’s so-called “bedroom tax” – which from April will force anyone “underoccupying” social housing to either downsize to a smaller property or face a cut in their housing benefit – is the severe shortage of smaller properties available to move to.

The National Housing Federation suggests there are 180,000 social housing tenants underoccupying two-bedroom homes in England, yet fewer than 70,000 one-bedroom properties are available.

From 1 April, anyone living in social housing who has one unoccupied bedroom will have their housing benefit cut by 14%, rising to 25% for households with two spare bedrooms.

Maureen Hagan, 58, lives in a three-bedroom property in Grangetown, Middlesbrough, with her 18-year-old granddaughter, whom she took in five years ago. She will now see her housing benefit cut by 14%, even though she says she requires the extra bedroom in order to meet standards set by social workers, as she is fighting to bring another young relative out of foster care and into the family home.

She feels that the welfare reform is out of sync with the rate of inflation, and calls for the government to prolong the introduction of the cuts. She spoke of her recent struggles to meet utility payments: “That was before that bedroom tax on top of everything else. What am I going to do then?”

Hagan expects to face a £14 cut to her housing benefit each week – more than half her weekly shopping budget.

“I can’t afford to buy makeup. I’d like to buy it but I can’t. I’d like to buy my own clothes; the charity shop’s my clothes shop, and it has been for a number of years.”

(The Guardian, Friday 8 March 2013)

Both of these extremes are a direct result of the current economic circumstances affecting us all. One part of our society profits- gets richer, amuses themselves with more toys.

The other folk (whilst watching Top Gear on Sunday night) have decisions to make about whether they move house because they are mere grit in the cogs of the system. Their fate is irrelevant to the ultimate prize. If they can not consume, they have no value.

We are not all ‘tightening our belts’, or ‘feeling the pain’. We are not all making the same sacrifice.

There are of course other possibilities. Some are about managing the economy better- taking a Keynesian approach to stimulating our economy again. But this does little to change the game- it just clarifies a few of the rules.

Poverty is not a choice, it is an economic necessity to ensure growth. The alternative is revolution- if not of the Marxist kind, then perhaps the Jesus kind, which takes the emphasis off power, and puts it on love. Against this there is no law.