Neil Wilson examines the Tory MP George Osborne’s culpability for the damage he caused to the British economy whilst he was Chancellor.
Say what you like about Gideon “George” Osborne, he’s an inspiring example to our young of the value of persistence.
Having been interviewed and rejected by The Economist for his first-choice career in journalism, George was forced to stick it out in the trenches as Member of Parliament for Tatton for three, long lonely years, before his natural charm and wit saw him finally promoted to a lowly role in the Shadow Treasury. Following his genius masterminding of the Conservatives not-quite-a-victory in 2010, George ascended to become Chancellor of the Exchequer.
With only his loyal friend David “Dave-o” Cameron at his side and channeling his spirit animal, Peter “Dark Lord” Mandelson (some say they once shared a crypt together. Or was it a Russian Oligarch’s yacht?), Osborne beat Britain’s recalcitrant economy with the Holy Mace of Austerity for seven years, before finally achieving his lifetime’s ambition and getting the gig as Editor of the Evening Standard.
Now, if Britain’s “youth” showed a little more gumption, instead of waving rainbow banners at bearded old socialists at Glastonbury, they too could fulfil their dreams with only an old school tie, a charming best mate, and a seven-figure trust fund to tide them over.
There is little doubt that an individual as inspirational as Osborne will enjoy a long and successful career at the Standard. He is, after all, just as qualified to be editor of a leading newspaper as he was Chancellor of the Exchequer. But as the British economy still fails to heed its new master, dull City-favourite Philip Hammond, perhaps we should dare to entertain the notion that journalism’s gain is of huge benefit to the nation, and that Osborne’s economic policies were founded on what can best be described as utter bollocks.
Osborne understands politics better than numbers. Treasury officials gave him the moniker ‘The Submarine’ – surfacing only a handful of times a year. They were struck by the similarity in approach to Gordon Brown – particularly in the area of departmental cuts. Osborne continued the spending reviews introduced in 1998 by Brown and the vicious approach to spending cuts.
Since 2010 departmental cuts have been around 30%. Even in the protected departments of Health and Education increases have been less than 8% and those increases have been overwhelmed by the unplanned increases in the population caused by high levels of net migration. As a result, the NHS is running vulnerable software, doctors are quitting in droves, and A&E departments are overwhelmed.
But the really clever political move was to shift the majority of the cuts onto the Department of Communities and Local Government. A 50% cut in budgets with more planned. These come out of the block grant given to local authorities. Most people don’t realise local authorities get money from central government. They think it comes from the local council tax. A very clever way of shifting the blame for potholes and planning failures onto local district councils.
George Osborne made government deficit reduction the central pillar of Osbornomics. He is a firm believer in small government and expected that once all that nasty inefficient public sector spending was eliminated (also known as people’s jobs) the private sector would rush out to the banks to borrow money. This approach was known as expansionary fiscal contraction. And it is as nonsensical as it sounds.
Businesses only invest and hire when they are swamped with demand. The public sector and its staff are a reliable source of demand for business. When that spending stopped happening unsurprisingly businesses hunkered down. The monetary circulation upon which the economy depends slowed down and slow growth continued.
A chancellor has little or no control over the size of a government deficit. It is what it is, largely determined by private sector saving and borrowing decisions. The chancellor can only really determine the *distribution* of taxation amongst the population. In this respect Osborne has been resolute. Ensure the rich keep as much as possible – even to the point of raising VAT, that most regressive of taxes, in the middle of a severe recession.
But the final chapter of Osbornomics was perhaps the most egregious. A signed up member of Project Fear in the ‘Brexit’ referendum, Osborne said the economy would shrink, unemployment would skyrocket and interest rates rise if the UK voted to leave the EU. The UK did vote to leave, none of what Osborne suggested happened, and Osborne was gently sidelined once his best mate was no longer there to look after him.
Osborne may have won the political arguments early in his tenure, but accounting reality cannot be denied. Your income depends upon my spending. If I have nothing to spend, you will not be employed. Osborne forgot the first rule of macroeconomics and eventually paid the price.
After more than 20 years in the IT industry, Neil has learned the hard way that systems rarely follow the manual. Moving from network crashes to financial crashes, Neil was intrigued as to whether the economy could be fixed with a reboot - which lead him to Modern Monetary Theory (MMT).
Neil has become one of the UK’s leading writers on MMT and its implications. His blog “Modern Money Matters” challenges the high-priesthood of Important Grey Men who refer to people as “resources”, and who believe debt is bad for government and good for you. Neil dreams of a world where everyone who wants a living wage job can find one next to their home, friends and family.
Getting to know Neil:
- How do you spend your days?
Hopefully making a small part of the world run smoother than it did yesterday.
I do to business and information systems what Formula 1 mechanics do to the cars - continual improve them and fix them when they're broken.
- What in your answer to Q1 is especially important to you and why?
Doing more with what we have is vital to progress. I look to add to progress in my small way.
- What drove you to focus on economics? Was there a particular moment you can remember that led you to this field?
The 2008 Financial Collapse happened and it became clear that the economy was broken and ineffective.
- What drives you professionally?
I don't like to see things that are broken or ineffective. I want to sort them out.
- In your opinion what are the three biggest problems facing the developed and developing world?
Increasing income inequality, the breakdown of democracy and lack of accountability threaten the future peace and prosperity of all our societies.
- If you hadn’t become...not an economist, what would you have done?
Logically that would mean I would have to be an economist - which is an appalling thought. At that point I would have had to visit Japan, the place where economic theories go to die, and wandered into a forest with a sharp knife.
- If you look at recent history, can you identify a turning-point that explains how we come to face the peculiar challenges of today?
In 2008, billions of pounds were summoned up to save corrupt financial institutions, and yet now we are told there is no "magic money tree".
We all now know there is a man behind the curtain. We are no longer in fear of the Great and Powerful Wizard of Oz.
- What are the lessons we failed to learn during and since the 2008 crisis?
This is best answered by Michal Kalecki in his essay "Political Aspects of Full Employment" ... published in 1943.
"Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence.If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).This gives
the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully
avoided because it would cause an economic crisis.
But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness.
Hence budget deficits necessary to carry out government intervention must be regarded as perilous.
The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence."
There is a reason episodes of Yes Minister never seem to date...
- Name one measure we might implement immediately to improve the situation.
Stop lying to the public about the Magic Money Tree. It's about the allocation of resources, not money. Money is just a tool to move stuff
around. Nobody has ever had 'inflation' written down as their cause of death. Malnutrition and Exposure: yes, Inflation: no.
- If you were a President / Prime Minister what would your first three pieces of policy be?
Jobs for All
- What was your biggest & / or your most recent mistake?
Assuming that Macroeconomic textbooks were scientific works, not religious texts guarded by a loyal priesthood.
- You are stuck in a ski lift for twenty four hours and you can have one person (living or dead) with you. Who will it be?
The dead person - they're exceptionally good listeners and never interrupt.
- Name the book that changed you.
Full Employment in a Free Society by Beveridge.It was written in 1944 regarding the unemployment crisis of the 1930s and in response to
the full employment enjoyed in the Second World War.The questions raised in the book are still to be answered 70 years later.
- What would you do differently if you were to start all over again?
I think I'd answer these questions in pretty much the same way.
- Give our readers, members and subscribers a piece of advice that has served you well.
Very little in life is under oath. But the Wayback machine lives forever.
- What is your main anxiety where you and / or your family are concerned?
We now face a world where our children can expect poorer housing, education and health outcomes than their parents or grandparents.
No-one in good conscience can hand over the world to the next generation, knowing we have made their lives worse, taken away privileges and blocked the opportunities that we enjoyed.
- What gives you hope for humanity?
That there are people out there who have actually read this far.
Latest posts by Neil Wilson (see all)
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- George Osborne: The Vainglorious Chancellor - June 28, 2017