What is the radical alternative to austerity?

I’ve just recently started reading David Graeber’s The Democracy Project. A History. A Crisis. A Movement, an interesting look at the Occupy movement by one of the leading figures involved in its emergence. Graeber explores the rise of the Occupy movement and explains why he felt it struck a chord with a broad cross-section of society in the fight against neo-liberal economic policy. Unlike many other protest movements, it drew support beyond the traditional middle/educated classes and tapped into something that other movements had failed to manage, despite the similarity in aims and objectives.

It’s an interesting read and has much to say about organising protest movements in the face of dramatic (and unnecessary) cuts. One section particularly stood out for me [pg. 27]:

“The main thing that stuck in my head about the talk about Bloombergville,” I volunteered, “was when the speaker was saying that the moderates were willing to accept some cuts, and the radicals rejected cuts entirely. I was just following along nodding my head, and suddenly I realized: wait a minute! What is this guy saying here? How did we get to a point where the radical position is to keep things exactly the way they are?”

“The Uncut protests and the twenty-odd student occupations in England that year had fallen into the same trap. They were militant enough, sure: students had trashed Tory headquarters and ambushed members of the royal family. But they weren’t radical. If anything the message was reactionary: stop the cuts! What, and go back to the lost paradise of 2009? Or even 1959, or 1979?”

Of course, this is entirely the case. The popular movement against cuts has not really been particularly radical. All it has done is called for a halt to cuts to public services, hardly a radical perspective. Since when has maintaining the status quo been a radical proposition? Indeed, when one considers the broader spectrum, maintaining public services at pre-2008 levels (or arguing against the cuts) is a relatively conservative (small ‘c’) position. The radical positions, it seems to me, are to argue for the cuts with increased deregulation of the private sector or to argue for increased spending coupled with a reversal of thirty years of deregulation.

That said, even the argument to increase investment isn’t really a radical notion. It certainly wouldn’t have been considered radical in the pre-Thatcherite era when Keynesian economics was the dominant force. Recent evidence certainly furthers the argument that the programme of austerity undertaken by the coalition is both unnecessary and damaging.

The programme of austerity owes some of its existence to a study published by economists Carmen Reinhart and Kenneth Rogoff in 2010. The study concluded that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” In other words, countries with a debt to GDP ratio above 90% have a slightly negative average growth rate.

However, it has now emerged that the study was filled with errors as revealed in “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” by Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst. As the Roosevelt Institute notes:

“[The authors] find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don’t get their controversial result.”

(You can read a further explanation of the flaws on the Roosevelt Institute blog.)

In essence, the premise behind the programmes of austerity around the world have been based on, as the Roosevelt Institute put it, “someone accidentally not updating a row formula in Excel.”

Of course, most of the rhetoric around the need for austerity was deeply flawed even before the news that Reinhart and Rogoff’s conclusions were built on shaky foundations. Take the infamous, oft-repeated, national debt is the same as household debt claim. Leaving aside the idea that a household has the ability to print its own money (don’t try this at home!), the argument does not stand up to scrutiny.

When looking at household finances, is taking on more debt always a bad thing? Or are there circumstances where it is both justifiable and logical? Take, for example, someone in a job earning £20k. They don’t own a car and rely on public transport. They are offered a job paying £40k per year but the job is located further away and public transport is not feasible. They then decide that the best course of action is to take out a loan to buy a car, substantially increasing their debt. The car enables them to travel to their new job and double their annual salary. In the short term they have substantially increased their debt, however now they are earning twice as much, this debt will be cleared within a few years of earning a greater income. Once the debt is cleared, they are clearly in a much stronger financial situation. The debt is gone and they are now £20k better off per annum and their standard of living is sufficiently higher. So was the greater short-term debt burden worth it? The answer is obvious.

And I think this underlines part of the problem. Capitalist systems seem to lend themselves towards short-term measures. Instead of looking to the long term and building long-term stability and prosperity for future generations, it lends itself to short-term solutions that will yield immediate profits, until the next short-term plan is required. Of course, it doesn’t help that the political cycle also lends itself to short-term solutions, solutions that can be used to aid re-election without dealing with long-term effects.

It is certainly clear that the current strategy isn’t working. Borrowing has increased by £245bn more than was originally planned. Consider that for a moment. If £245bn had been pumped into the economy in 2010 to support infrastructure projects and build public services, would our economy still be suffering? Would such investment have sparked growth as money flowed into the economy, into people’s pockets and encouraged greater spending? Quite probably. And yet £245bn has been borrowed with no real purpose or plan. That is a catastrophe and a worrying sign of economic incompetence.

So I look at the current picture and I wonder, what is the radical position? For me the radical answer has got to be to increase spending and reverse deregulation of the private sector. For library campaigners it means the fight needs to be more than against closures and de-professionalisation. The argument needs to be about increased spending. It needs to be about investment in libraries. It needs to be about laying out a clear case for what libraries can offer communities if money is pumped into them rather than taken away. It’s about proposing what can be built rather than simply preventing their demolition. And not just libraries (before anyone thinks I am suggesting cuts to other services to enable spending on libraries – I pick libraries because that’s an area I am particularly focused on). All services should argue the casestrongly and persistently for investment. We should not accept that cuts and austerity are a necessity and must be accepted. We need to argue that the reverse is true: spending and investment are the answer.

This may be seen as naïve (who am I kidding, it will be seen as naïve), but the argument should be made and with great vigour. Rather than meekly accepting cuts as an inevitability and buying into the “greater debt is bad” argument, we need to take the battle to those arguing in favour of austerity. They are not expecting an assault on these terms but rather that the opposition will take the moderate halt (or slow) the cuts position. The position for increased investment should not be allowed to crumble when it is faced with the arguments used by the austerity drivers. Instead, the argument should be intensified, not abandoned. The longer people suffer as a result of austerity measures, the more they see wages stagnating and opportunities restricted, the more recovery seems a distant unobtainable fantasy, the more that alternatives will begin to appeal. The trick is to maintain the argument, consistently and coherently. It is this very trick that the right have used to convince people to accept policies that are counter to their own interests. The persistent drumbeat will build support in the long-term and pressurise those driving austerity. The longer we persist in arguing for greater spending, the louder our voices become and the greater support we can mobilise.

But then again, maybe I am just a naïve dreamer…