In Thackery’s early 19th century satire, Vanity Fair, all of the characters are flawed in one way or another, but George Osborne is is without a doubt the most shallow, self-regarding and stupid of the lot.
Fast forward a couple of hundred years to the Conservative Party Conference in Birmingham.
The Chancellor of the Exchequer told his audience that:
“working age benefits in Britain will have to be frozen for two years.”
His reason for proposing this freeze is that it will reduce the fiscal deficit by £3bn.
Elsewhere in the Chancellor’s speech he said:
“..the best way to support people’s incomes is to ensure that those who are out of work get a job, and those in work pay less tax.”
For those who are out of work to get jobs, we need more jobs. It’s impossible to create a job without investing money. People on benefits and low pay, by definition, don’t have any money to invest in enterprises that will create jobs for themselves. So who is going to invest their money to create the jobs that the Chancellor thinks will “support people’s incomes” better than the working age benefits that he’s proposing to cut (a freeze being a cut, over time)?
Reducing the deficit by £3bn means not borrowing £3bn from corporate investors, so corporate investors are going to have £3bn of spare cash. But they don’t create jobs; they’re in the business of renting out money and they’re not going to replace risk free government gilts with investment in precarious job-creating enterprises. The £3bn will be spent on US Treasury bonds, mortgage backed securities, or some other equally safe bet.
Maybe the Chancellor believes that if “those in work pay less tax” the money that is retained by taxpayers will somehow stimulate the creation of well-paying jobs for those who are currently claiming benefits because they are unemployed or underpaid. This is “trickle down” economics, a theory that’s been popular for the last thirty years as an excuse for low taxation and light regulation. All of the evidence tells us that the theory is nonsense, that low taxation increases the gap between rich and poor.
But let’s set aside our skepticism of trickle down and look at the numbers. In his speech the Chancellor implies that his pledge to raise the personal allowance (the amount you can earn before you start paying income tax) from £10,000 to £10,500 will somehow create all of these extra jobs. The rise in personal allowance will, it is claimed, leave us with £1.4bn extra spending money in 2015/16. This is £0.1bn less than the £1.5bn that the Chancellor is proposing to cut from public spending each year thanks to the benefits freeze, so even if we all spend every penny of our extra allowance there will still be a net loss of money flowing through the economy.
For an economy to thrive money has to be available and mobile. Government spending is an effective way to make money available to bits of the economy that would otherwise see very little of it (e.g. the unemployed). Taxation is an effective method of keeping money mobile; recycling what’s been spent, so that it can be spent again.
Welfare benefits are the best money-recyclers of the lot because every penny of them tends to get spent every month. Cutting benefits, therefore, does more damage to the wider economy than any other cuts that a Chancellor could make. So why is he doing it?
The short answer is “because he’s stupid”. He’s looking at the government’s accounts with the eyes of a book-keeper. He sees more money going out than coming in and concludes that we have to “tighten our belts”. He doesn’t see that government is a primary driver of the economy that must run at full steam in order for the rest of the economy to keep working.
The book-keeper sees the mounting piles of public debt and ever-increasing burden of interest that comes with it without understanding that this debt represents, almost to the penny, the savings of the nation. His myopia prevents him from seeing that the interest that’s paid on government debt is what pays for the nation’s private pensions. So reducing public debt reduces the opportunities for pensioners to enjoy risk free income.
His obsession with public debt means he’s blind to the mountain of private debt that is slowly suffocating the economy. He’s clueless about where the mountain came from and why it keeps growing, and how it’s related to his public debt fetish.
The truth is that he doesn’t really know or care how the economy works, or how unfair he’s being to those who rely on benefits. He’s chasing votes. By attacking benefits claimants he’s hoping to gain support in next year’s general election from the “hard working” middle class and their pensioner parents. Neither he nor they realise that his policies are an attack on everyone; they will hold the economy back in the short term and do nothing to address the structural flaws that condemn us to suffocation by private debt.
The problem is that our contemporary George Osborne is every bit as vain and stupid as his fictitious namesake from the Napoleonic Wars. He’s a book-keeper masquerading as a statesman, at our expense.
In Thackery’s satire everyone gets their just desserts and we close the book with a sense of satisfaction. Our current narrative is one of hundreds of thousands of household tragedies as people struggle to pay their bills in the face of inadequate wages and diminishing benefit payments. The story is set in the shadow of a mountain of private debt that continues to grow, blocking out the sun, blighting all of our lives, not just those who will be directly affected by the Chancellor’s benefits freeze. The ending will not be a happy one for any of us, including Mr Osborne’s target market.
We must educate ourselves, our neighbours, and above all our politicians so that everyone understands how our financial systems actually work and what can be done to change them so that our economy is able to thrive, so that no-one is left to the mercy of an inadequate benefits system.
In the meantime please champion any argument against austerity, even if you don’t fully understand the reasoning behind it. Our only hope of getting less stupid policies in the next parliament is by letting the politicians know that we’re not going to buy their austerity nonsense, whether the wrapping paper is red or blue.
As for George, let’s make sure the little twerp is voted out of office. If the chapter entitled “The General Election of 2015” ends with Osborne face down in the mud of his personal Waterloo we can turn the page with some satisfaction, at least.