Tuesday, 29 March 2011

She told you this would happen

Naomi Klein, in The Shock Doctrine, tells us that free-market capitalism uses any serious political or economic event to institute a vicious hard-right monetarist regime: consumer, environmental and worker protection abolished, corporate taxes cut, public services abandoned.

This is exactly what's happening in the UK, as Johann Hari points out.

As a proportion of GDP, Britain’s national debt has been higher than it is now for 200 of the past 250 years. Read that sentence again. Check it on any graph by any historian. Since 1750, there have only been two brief 30-year periods when our debt has been lower than it is now. If we are “bust” today, as George Osborne has claimed, then we have almost always been bust. We were bust when we pioneered the Industrial Revolution. We were bust when we ruled a quarter of the world. We were bust when we beat the Nazis. We were bust when we built the NHS. Or is it George Osborne’s economics that are bust?
Our debt is not high by historical standards, and it is not high by international standards. For example, Japan’s national debt is three times bigger than ours, and they are still borrowing at good rates.
David Cameron claims that, despite these facts, they need to cut our debt by slashing our spending because the bond markets demand it. If they do not obey, then our national credit rating will be downgraded, and we will have to pay much higher interest on our debt. But here’s the flaw in that plan. That’s not what the bond markets say. Not at all. Professor Paul Krugman, the Nobel Prize-winning economist whose predictions have consistently proved right through this crisis, says Cameron is conjuring up “invisible bond vigilantes” who “don’t exist.” Who is the bond market really punishing? It’s the countries that cut too fast, and so kill their economic growth. The last two nations to be down-graded were Ireland and Spain, who followed Cameron’s script to the letter.

The irony is that in this case, it was the utter failure of capitalism which brought about the catastrophe and ushered in the medicine of… free-market capitalism.

I think I'm starting to understand where it went wrong now.


Adam said...

Tends to be big confusion between the country's *debt*, and the country's *deficit*.

A lot of politicians (who should know better) get it wrong. Sometimes they do it deliberately.

Debt = the grand total of what we owe, and what we are currently paying interest on (currently interest on our debt stands at something like 62 billion quid a year - rather a lot, could easily pay for a few needful things).

Deficit = (in a given year) the gap between what the country takes in via tax, and what the govnt spends. Deficit is the amount of *extra* debt we need to accumulate every year. Every year the deficit (if there is one, and there's been one since 2002ish) gets added to the debt, along with the total interest due. Therefore, while there's a deficit, the debt can't be paid off.

The coalition are trying to pay off the *deficit*, not the debt.

Just sayin'.

The Plashing Vole said...

Thanks Adam - very instructive.