George Osborne’s Tea Party settlement is the stuff of cold sweats

http://www.theguardian.com/commentisfree/2015/jun/16/george-osborne-austerity

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Ever since the crash of 2008, every economic argument worth having has been political. Rows over what to do about Greece or bankers may come swathed in a tarpaulin of jargon, or bearing a roof-rack of technicalities, but really they’re about the big stuff: who gets what and from whom, and what makes a society worth living in.

Which makes austerity the biggest political debate in Britain today. Last week George Osborne vowed at Mansion House to make budget deficits all but illegal; next weekend there will be a national demonstration against the cuts. These events will look very different – a bunch of penguin suits discussing finance over a slap-up dinner versus an army of trainers tramping in protest at the human fallout of the past five years. Yet they are the yin and yang of the debate over what kind of country the UK should be.

Related: Academics attack George Osborne budget surplus proposal

But there’s a mismatch – and not just of wardrobes and accents. Many critics of austerity fail to grasp the vastness of the political project that it serves. Take the letter from Thomas Piketty and 76 other top economists carried in the Guardian on Saturday, warning that any law against the government running an overdraft (which is all a budget deficit is) would eventually crash the economy.

Completely right, but also rather beside the point. If the government begins saving more in taxes than it spends on schools, hospitals and pensions, then – as the academics argue – someone else will need to spend more to keep the economy ticking over.

The extra billions could come from businesses investing in new equipment, or from foreign countries buying far more goods and services made in the UK than we buy from them. But since our post-industrial nirvana doesn’t go in for investment or export booms any more, what’s far more likely is that ordinary Britons will plunge deeper into debt. The UK’s future prosperity will be perched atop a house of credit cards – with a little extra help from Wonga.

The real fault with Osborne’s budget law isn’t its outcome – it’s the intention. Governments pass ridiculous legislation all the time. In his last days at No 10, Gordon Brown forced through an act making child poverty illegal. That law will be broken, but no prime minister will be banged up. Similarly, Osborne could outlaw government borrowing – but that would mean the chancellor lugging his own £90bn overdraft down to Pentonville for a stretch inside. For all their jibes, the Tories don’t have the best form as savers – official records show that Labour administrations racked up more budget surpluses than they did.

The point of this law isn’t the letter, but its spirit. Osborne wants to use an apparently obscure, highly technical change in the economic rules to reshape British society. He says as much in his Mansion House address, calling it a “permanent change in our political debate” and “a new settlement” for the UK. Unlike in 2010, the chancellor is no longer claiming these cuts have been forced upon him – now he’s promising they’ll be good for us.

This isn’t the cosy Micawber of Dickens: it’s Tea Party economics, where a movement funded by billionaires proposes that everyone else tighten their belts. It echoes Margaret Thatcher’s description of her own programme: “Economics are the method; the object is to change the heart and soul.” The Iron Lady issued that pledge in 1981: over the next nine years she certainly made good on it.

So what is Osborne’s promise? What’s the existential change packed inside the austerity project? To find out, you should turn to Wolfgang Streeck. As co-director of the Max Planck Institute for the Study of Societies, Streeck ranks among the top political economists in Germany – and in his stunning recent book Buying Time, he lays out a thoroughly researched argument for where Britain and the west are heading. It is far more interesting than the usual ad hominem attacks on David Cameron and Osborne – but, be warned, it is the stuff of cold sweats.

Streeck argues that Britain, the US and mainland Europe have been through two major political settlements since the second world war. First came what he calls the tax state: where countries provided doctors and teachers and benefits – paid for largely out of tax revenues. Then came Thatcher and Reagan. At the urging of the wealthy and big businesses, they slashed taxes. To remain politically viable, however, they provided similar levels of public services and welfare to the mass of voters.

The cliche is to blame greedy voters for wanting ever more stuff from their governments. Streeck’s research demonstrates the opposite – that the fault lies with the wealthy opting out of the tax system: “Those who have profited most from the capitalist economy have been paying too little … into the public purse.” The result was that across a range of rich countries tax revenues hardly grew, even as spending continued climbing. Governments filled the gap by borrowing: this is what Streeck calls the debt state.

What we expect from Whitehall or our town halls will come instead from G4S, Serco, Atos

The debt state comes with two big problems. First, as governments become more and more in hock, their creditors in banks and pension funds have more of a voice in democratic politics – sometimes more influence than the voters. Asked in 2007 who he fancied for the upcoming US election, Alan Greenspan, the former head of the US Federal Reserve, shrugged: “It hardly makes any difference who will be the next president. The world is governed by market forces.”

Second, the prospect always looms of markets refusing to lend your country any more easy money: just as happened between 2008 and 2010. Followers of Keynes correctly argue that the state can rack up more debt than rightwingers believe – what they overlook is how that erodes and finally destabilises democracy.

First rich countries taxed and spent, then they borrowed and spent. What happens now? As you heard from Osborne, they propose to cut – and not spend half as much. This is what Streeck names the consolidation state: where what we expect from Whitehall or our town halls is pared back or comes instead from G4S, Serco, Atos.

This is what’s really at stake on Saturday’s march and the austerity wars. This isn’t just about Bullingdon boys running amok, but an orthodoxy largely accepted by Labour and across the west, even in Sweden. Under the guise of a budgetary crisis, our politics, our public realm, our society stands to be remade. And it can’t be changed back.