How Is British Austerity Working Out?

The conservative government in England is trying austerity. They are using the shock-doctrine tactic of drumming up public hysteria over bad news – in this case the financial collapse and resulting downturn – and using the panic as cover to quickly impose radical anti-democracy changes before the public has time to react. How is that working out?

OK, I won't keep you in suspense. The conservative government in England is cutting back on the things government does for the people, and the result is that they economy is shrinking, causing a decline in tax revenue and business confidence, thereby undermining the justification for the austerity. And the long-term damage from cutting back on investment in infrastructure, education and the common good is yet to be measured.

Democracy “Takes Money Out Of The Economy?”

Conservatives believe that government and democracy are “in the way.” They believe government “interferes” with the economy, that government spending “takes money out of the economy” and government borrowing “crowds out” private borrowing. They believe that “austerity” – cutting back on the things we (government) do for each other – will give businesses “confidence” and when businesses are finally confident that government is out of the way they will invest and expand which will grow the economy.

Progressives believe that democracy drives prosperity. The basic logic is that instead of concentrating the income and wealth at the top, more people having more money to spend creates demand that drives hiring and growth in a consumer-driven economy. Progressives believe that more, smaller businesses provide more opportunity for more people. They believe that a strictly regulated business playing field that forces large businesses to compete in markets instead of succeeding by using their size and power to kill competition lets new startups thrive and innovate.

Progressives believe in shared prosperity — wealth and power spread among the many is better for all of us than wealth and power concentrated among a few. Just as we believe that more people doing better helps us all, we believe that more smaller businesses doing better also helps us all.

On spending and deficits, progressives believe that growing the economy adjusts the ratio of public to private sectors, thus keeping it in balance. In other words, investment pays off, so putting money into infrastructure and education and services creates a positive business environment that keeps the private sector larger in relation to public sector than cutting back does, thus benefiting both.

Democracy Reacts To Austerity

The public in England is unhappy about the austerity. Time, from March: Anti-Cuts “March for the Alternative” Draws 500,000 Protesters in London,

The March for the Alternative—organized by Britain's Trades Unions Congress (TUC)—brought central London to a standstill as teachers, nurses, pensioners and assorted public sector workers marched from Victoria Embankment, along the western bank of the Thames, one mile west to Hyde Park. Some came dressed as monks, others as clowns; the former was a clever play on the country's impending austerity, the latter on the perceived madness of government-backed measures.

This is from Birmingham, Birmingham Against Austerity – Second City On The March:

Religious leaders weigh in: Anglican Leader Slams British Austerity Budget,

Archbishop of Canterbury Rowan Williams has touched off a fury by accusing the British government of causing widespread “anxiety and anger” with its new austerity budget.

The leader of the world's 77 million Anglicans crossed swords with the government of Prime Minister David Cameron over his “radical, long-term policies for which no one voted.”

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The Numbers

Conservatives are finding out that taking government spending out of the economy “takes money out of the economy” and the economy is slowing and declining. The justification for austerity is breaking down. (Of course, the justification is just a front, providing cover for the real agenda of concentration public wealth into a few private hands…)

BBC, Manufacturing confidence 'slides',

The UK economy is recovering too slowly and more support needs to be provided for private sector firms, the British Chambers of Commerce has said.

The group's survey for April to June was more positive than the previous three months, but the BCC said that the UK economy was “fragile”.

Another survey suggested confidence among UK manufacturing firms had fallen to its lowest level in two years.

Accountants BDO blamed the fall on weak demand domestically and from overseas.

Telegraph, A third of finance directors believes UK economy will double-dip,

One-in-three finance directors now believes the economy will fall back into recession, according to the survey of FTSE 100 and 250 companies by Deloitte.

Their concerns come as economists have moved swiftly to downgrade their growth forecasts following poor figures on construction and manufacturing late last week. Citigroup is among those forecasters now predicting the economy shrank by 0.2pc in the second quarter. The respected National Institute has warned growth will be just 0.1pc, following the previous six months of economic stagnation.

The predictions will put pressure on the Treasury to rethink its austerity measures and consider ways to stimulate the economy.

Confidence slumps in UK marketing,

Nearly a quarter of UK companies cut their advertising budget to protect profits in a sign they overestimated the strength of the recovery, according to the latest quarterly Bellwether report.

… Confidence amongst the companies surveyed about their own sector's prospects also slumped, with a third of respondents saying they felt the outlook had worsened compared with the previous three months.

MP Chuka Umunna writes in, The Lifeblood of the Economy, (emphasis added)

“The British economy is indeed recovering…economic growth is now strong” and “it will become stronger” as a result of the work the Government is doing. This was the Business Secretary Vince Cable speaking in the House of Commons on 13 January.

The reality was somewhat different. Two weeks after Cable's claims the Office for National Statistics told us GDP had decreased by 0.5% in the last quarter of 2010; in April they told us GDP had increased by just 0.5% in the first quarter of 2011. So the economy flatlined under Cable's watch.

Second quarter figures for 2011 are due on 26 July. The highly respected NIESR expects GDP growth of just 0.1% for this period. If correct, that would mean GDP growth of 0.1% in 9 months suggesting that Cable is living on a different planet.

The Implications For Us

Even as the UK economy sinks conservatives in the US are demanding austerity here — cutbacks in the things We, the People do for each other and for our economy. We should see the roadmap in front of us: cuts cause declining economic growth and reduced revenue to the government, greater concentration of wealth and power into fewer and fewer hands and a public further demoralized by the feeling they have no say. Of course, to conservatives these last two are the point: concentration of wealth and power and a demoralized, compliant public.