Sunday, 31 May 2015

Why Labour Effectively Has to Turn Right

In social-democratic fantasy land there is a strange lingering belief: Labour should turn left, seizing the narrative space now occupied by the Tories on austerity, and remoulding the electorate's views on extreme wealth. The actor Michael Sheen argues for something like this in the New Statesman this week. Labour didn't do this last time, and there is no reason to think they will change now.

It is not just ghoulish characters like the Bond villain-esque Peter Mandelson who command the future direction of the party. String pullers there may be, but they wind up  in power as a result of institutional structures not individual quirks. The electorate, meanwhile, is not particularly far to the right either. The notion of a homogenous electorate uniformly shifting this way or that with the winds of history is a construction. Popular perception is highly mediatized, and media space is in the end contestable. Moreover, arguments about the changing beliefs of society assume a generic uniformity to society as a whole, when the reality is that society is divided according to social position, wealth, privilege and so on. Arguments that claim groups with very different interests are moving together in one direction or another should be met with scepticism.

So what is eating the Labour vote? Why, effectively, does Labour have to turn right? The simple answer is, those who do vote in our democracy, tend to the right. Those who do not, tend to the left. This is the real, hardly mentioned story of recent elections. After the Thatcher revolution and Labour's internal splits and reforms in the 1980s, voter participation in elections collapsed. Since the mid-80s voter turnout has struggled to reach much more than 65%. At the most recent election this trend was re confirmed. A 66% voter turnout gave a parliamentary majority  to the Conservative party.

Here is the Guardian on the social composition of the 2015 vote:

"Labour only had a clear lead over the Conservatives among 18- to 34-year-olds, voters in social class DE (the “semi-skilled and unskilled manual occupations, unemployed and lowest grade occupations”), among private and social renters, and black, Asian and minority ethnic (BAME) voters.


But among all these groups, turnout was lower than the overall level of voter turnout (66%).
To make matters even worse for Labour, the party’s vote share actually fell among those aged 65 or above. Within this age group, Miliband’s party won 23% of the vote – down eight points on 2010."
So Labour is, by default, the party of the low-paid, students, and ethnic minority groups. Not a bad thing to be by any means. But those groups vote in lower numbers than the white and older voters who turn out consistently for the Conservatives. Unless Labour wants to challenge the alienation of anywhere between 30 and 40% of the electorate who don't vote, they are stuck chasing ageing Tory voters.

Why do these voters turn out less than their Tory counterparts? There is no widely accepted single answer, but it is reasonable to think that politics as it is currently undertaken leaves them out in the cold. Westminster discourse is, like so much in our democracy, marketed firmly at homeowners. More so since Thatcher than ever before in the age of democracy.

Labour will not challenge the diminishing democracy of the UK. It is, less than a true "movement" as it likes to claim, a parliamentary electoral machine. It is locked institutionally and psychologically into the state. So many injunctions to just vote will not convince the many who see Westminster as unrepresentative of them that it is worth doing. Labour will move right because, short of a sustained attack on the institutions and mode of organisation of the British state (electoral reform, Scottish independence, a total rejuvenation of the welfare state), it cannot reach the absent, non-voting thirty percent. Labour obeys a "state logic" - its instinct is to preserve the normal running of things, which is after all the condition of its existence as a parliamentary party.  Non-voters will not start voting any time soon.

So, farewell to the Party of the Working Class. And a warm welcome to its no doubt short lived successor: The Party of the Anxious Middled-Aged White Person Who Is Marginally Less Comfortable About Greed Than The Average Tory.

Saturday, 23 May 2015

Greek Myths

"Pantomime villain" Wolfgang Schauble, the German Finance Minister, with German Chancellor Angela Merkel



A cheap title, I know. But how else to label this typically storied European drama? The Greek people voted for an anti-austerity government of the left in January, and European leaders have been grappling with this alien concept ever since. In secret, I imagine, they see it as the primest vulgarity. But of course nicety prevents them saying that. So how have European leaders chosen publicly to address their Greek "partners"?

Thus far the Syriza government in Greece has made every payment it promised. It has been honest about the fact that its upcoming June payments are simply unaffordable under current conditions. It has stated clearly its intention to put Greek salaries and pensions ahead of debt repayments. This is a fairly straightforward, practical commitment that Syriza leaders have made repeatedly. Little they have done has suggested uncertainty on this and other red-line issues. And indeed what creditor could reasonably expect otherwise?

Why, then, do magazines like the Economist so love to report Syriza's apparent flightiness and naivety. "They are living in cloud cuckoo land," one typically anonymous Brussells official lamented. Having damned them from the start, the Economist now relishes Syriza supposedly throwing their chance away. The stated problems are always inexperience and the supposed misplaced idealism of radicals: "A few years ago many of the men now in charge spent their time discussing the contradictions of capitalism over coffee and cigarettes. Few had ever run anything, let alone a government." This assumes experience of past Greek governments should somehow recommend you be allowed anywhere near a new one. 

European Central Bank head Mario Draghi - the humane face of the Troika - often pops up to remind us how unbearable the situation has become for Greece and how dangerous events are for the world economy. Draghi refuses to contemplate a Greek default, whilst reassuring us it is "up to Greek leaders to do as they want." Meanwhile, the world largely forgets it was his organisation that disabled the cash to finance Greek borrowing a few weeks after Syriza's election victory (leaving the state reliant on more expensive emergency liquidity). By what interpretive flourish can the central bank of a currency union opportunistically strangulating liquidity in its most troubled country be conceived as unbiased? And this at the very moment ECB liquidity became free to slosh around the rest of the deflationary eurozone in the form of much-belated quantitative easing. No such monetary laxity for Greece though: they were cut off from these funds, as they are forcibly cut off from markets by eurozone policy in general. The virtues, then, of a famously "rule-bound" system are somewhat undermined when those rules happen to be deeply unfair.

Syriza's leadership has occasionally pinned its hopes on German Chancellor Angela Merkel, who, it was hoped, might intervene like some benign monarch against her petty technocrat-courtesans and for the wronged Greeks. In pre-political life Finance Minister Yanis Varoufakis once hoped Merkel would look to her legacy as a Kohl-like unifier. Instead she spins homely truisms about compromise when she does not stay silent altogether. “It was a very friendly, constructive exchange, but it’s clear that there is still a lot of work to be done with the three institutions,” Merkel said recently of a "gate crashing" Alexis Tsipras, the Syriza Prime Minister. “France and Germany are always willing to give help…but the agreement must be sealed with the institutions and some very, very intensive work has to be done.” What intensive work can possibly be left? Syriza has ditched its promises on debt a write-off - the very thing that supposedly represented such a threat to European order. The effective remainder of its Thesaloniki program amounts to not re-firing 4,000 civil servants and continuing to make pension and wage payments at current rates. Perhaps it would be worth asking the partners if they could live on a Greek pension at the present rate, let alone following the cuts they are determined to inflict.

France and Italy, meanwhile, were meant to be left-of-centre allies. Here, I will admit, is evidence of Syriza's naivety: Europe is a continet that has long since proved that, on questions of basic human welfare, it speaks with one stern voice. Some things - an ever broadening spectrum, in fact - go "beyond left and right." Initially there were murmurs from French President Francois Hollande about Syriza's "unique responsibility." Not one to buck dwindling trends, however, Hollande fell quickly back into line. “We all have the same stance which is that Greece must stay in the eurozone," Hollande recently said. 

Here really is the rub. Greece must stay, as much for the total humiliation of Syriza the staying implies as any commitment to eurozone stability. For if anybody currently leading the eurozone was really committed to the Ordoliberal-lite that passes for common sense, the whole farce would have choked itself to death a long time ago. Instead their commitment is to the preservation of the peculiar domination European monetary union gives them. This, in the end, is all about politics.

The pantomime villain of the piece has to be German Finance Minister Wolfgang Schauble, a rabid and unreconstructed austerian who considers the thrift of Swabian housewives the model of macro-economic prudence. Schauble has the nasty whiff of a man totally unused to authority being questioned; the type to fight unexpectedly dirty when he sense the tables turning. The viperous, cloak-and-dagger air of negotiations - especially towards Yanis Varoufakis - seems to have come especially from him. The ennobled technocrats of European order may have a cruel streak, but few are so bullish with it. "Elections change nothing. There are rules," Schauble once said. Why, then, does Germany get to undercut the ECB inflation target year after year, while its trade surpluses run dangerously high? The truth is Schauble could not give a damn about any rules that do not suit his view of German success. Elections will indeed fail to change anything if he is allowed to continue punishing whole countries for the actions of his own banks. 

"The Greeks will have a hard time explaining this to their people," Schauble scoffed after the February deal, ever the diplomat. The problem, of course, was that this was a bridge agreement to buy the parties more time. A classic European fudge, energetically spun by both sides. The surprise was simply that Schauble was so blatantly using the deal not to sell compromise - or indeed an honourable defeat of his Greek "partners" - but as pure humiliation. If anyone is sanguine about Greece getting off his back, it is Schauble. But we should nevertheless conclude, given the tolerance of his antics by the Europeans, that his aggression fits well enough with the over all strategy.   

In response to Schauble's constant maneuvering, Vaorufakis deftly opted for a statement of the obvious: "[He] has told me I have lost the trust of the German government, I told him I never had it. I have the trust of the Greek people."  

The list of villains goes on. European Commission Jean-Claude Juncker warned the Greeks there could be "no democratic choice against the European treaties." Thus the default of position of European elites towards integration - past and present - was baldly stated. Later he remonstrated with them: there was more than one democracy in Europe to consider. Not if this career-long devotee not only of the high architecture of EU treaty-formation but of Luxembourg's power to make economies less equal and more secretive has anything to do with it. Juncker spent much of his tenure as Luxembourg's prime minister ensuring its became Europe's foremost tax haven, fit even for the likes of Bernie Madoff. Juncker is in no position to lecture anybody about the balance of democratic interests. Let us say, however, that if it is Greeks who are asked to bear the burden of extortion over debts they never asked for, their democratic voice might count for more than, say, the priggish, surplus-endowed Dutch.

The crux of the matter has something to do with surpluses. For it is neither European Union principle nor cold economic reality that repudiates Syriza's efforts. In a past age the Greek plan to cheapen government borrowing by the central bank; to encourage private activity via public investment; and to lessen the load of recovery through tax cuts would not simply have been acceptable but expected. To not follow such basic economic common sense would have been thought madness. But times change. 

The eurozone is a product of the peculiar position of Germany in the global economy, a position that combines both elements of subservience (to the dollar and to the whims of American consumption) and of dominance (in the form of the power of its exports, its low inflation and now long-term balance of trade surplus). In the end the German position forces German workers to bear the brunt of wage repression while private firms benefit from the lowering of transaction costs across the currency union and the boon to exports that is a gift not of productivity growth but of "internal devaluation." Germany systematically undercuts ECB inflation by repressing wages. The results are profits that can be retained and recycled into poisonous forms of credit, subsequently dumped on the periphery. French banks have long since been active in this too. Hence it was these banks that needed bailing come 2008; and they who stopped lending, drying up liquidity to vulnerable countries like Greece, who were now trapped in the single currency and could not devalue to regain competitiveness.

This arrangement - especially for the surplus countries of northern Europe, but also for France - has cemented the position of a very stable power bloc. German medium and big capital and its political wing - Merkel's Christian Democratic Union - have had an unprecedented run of stability and profitability. Financial capital, meanwhile, benefits from the toll taken on debtors by the deflationary eurozone and the strict rules it imposes on borrowers. Germany exports not only goods and services, but the German export-competitive model - a harrowing neo-mercantilism - to the periphery, whether they want it or not.

Syriza's position in the negotiations has faded not because of their inexperience, but because of a failed war of attrition in which the other side will not budge. Meanwhile, European leaders and their phalanxes of officials and media acolytes call for further compromise from the Greeks. However, it is not the Syriza position that is beset by contradictions. They have made a very simple moral and practical argument: the debt is unpayable under present conditions and they will not forcibly starve their own people. It is in fact the worldly-wise and supposedly disillusioned Europeans who are full of fantasy and, underlying this, contradiction. For in their efforts to export the model by which they have tightened their grip around Europe's throat, they are destroying their own "rules-based order." This along with countless lives. In the end, their attempts to keep power will be revealed for the class warfare they are.

They may yet strangle this challenge; but Europe will not return to normal.              

Thursday, 21 May 2015

Stop exploitation of unskilled labour... by confiscating wages!

I am sure plenty of people who didn't vote Conservative have had this feeling in the last fortnight, but then perhaps not. It is like having your head slowly but firmly submerged under water as you nod glassy assent. Dim and distantly through the water, dull Muzak further soothes you, an affectless, martial swing burbling interminably. You think vaguely of twisting or writhing, but there's nowhere really to turn.

It was that feeling that came over me today as David Cameron talked warmly across all news outlets about a few little things he plans to pop into the Queen's speech this year. Just a few treats as thanks to the public for his surprise majority.

The government would, he promised, tighten up the law - hardly lax now - on illegal earnings. Illegal in the sense of being earned by people without legal work permits, mind. Nothing about tax. That can wait. These illegal earnings are made by the dreaded "unskilled" - those sleepless undead yawning out of the scorched Krajina and intent on devouring our beleaguered benefits system. Fortress Welfare looks on and trembles.

Cameron will provide the police with sweeping powers to confiscate the wages of the lowest paid and most vulnerable people in the country. Never mind the gang masters. Never mind the traffickers. Never mind decent labour market regulation or the living wage. We need to "make Britain a less attractive place to work illegally." It will soon be such a noxious swamp that he might just get his way.

The logic of Cameron's position is basically simple: there is nothing you can do about employers, but you can punish workers. In his experience, the poor saps will basically take any shafting he can throw at them. It is probably mildly bemusing, but he is hardly going to question it. The PM has also had alarming fits of economic illiteracy in the past - like the time he politely suggested all indebted Brits pay off their credit cards at once. Never having wanted for much, perhaps it doesn't occur to him that demand is something that can be effectively stamped out when people have no cash. Here it is similar: apparently immigration puts a strain on welfare. No, it doesn't. Immigrants - like them or not - contribute more than they take out, by the billions. Unemployment and low wages put a strain on welfare because both reduce the government's tax intake.

Surely the Queen - lovely old dear that she is; that definition of haute bourgeois civility - won't swallow it? But what if even the Queen wants to send them home?

This nasty consensus is not just nasty - it is also a farce. Attacking immigrants and/or the 'elites' who cater to them is a sort of wilfully blind fury, in which everyone gets to be angry and at the same time avoid taking real action. It is a fetish. Belief that immigration is an apocalyptic force allows people to simultaneously conceal and revel in their own political impotence. It is nihilism dressed up in vaguely Chiliastic, cultish frenzy. And I suppose that dull ringing in my ears stems from the same place.

Monday, 11 May 2015

Comrades, Kindly Stop Smashing Things




It shouldn't need pointing out but clearly some comrades haven't got the message - either from the public at large, the media in general, or indeed from serious left-wing strategists -  that smashing stuff up is not going to bring you any propaganda victories in a war you're already badly losing. The fact is you might think the Tories are scum, but much of the public does not. Scrawling that message - just roundly rejected at a general election - on a hallowed war memorial during VE Day celebrations smacks either of stupidity or despair.

The left - or what remains of it - likes to talk about strategy, though not in the way parliamentary parties talk about strategy and the relentless pursuit of their "message." For the left strategy is the opposite of what goes on in elections: because it is made up of different political tendencies and types of group, the left favours debate and discussion over order and rigid discipline. This is a good thing. But these strategies occasionally become fixed in polar oppositions that are deeply unhealthy and rigid. The opposition between parliamentary reform and insurrection is one such fallback, ever ready to ensnare the left in defeat. By getting stuck on these rigid distinctions, groups risk turning inwards and, most damagingly, forgetting events and ideas in the wider world. The analysis of the concrete situation - with all its ideological twists and turns; with all the messy upheavals internal to the power bloc - gives way to melancholy and fatalism.

There is little permanence in the world of political strategy. When times change, ideas and people change too. But there are a few things we can say with reasonable confidence; one being that, if there ever was a time when tagging Whitehall and beating on a phone box was a broadly effective propaganda tool, now is not it. We are not at the Bastille; we are mostly on street stalls and in dole queues. We are not Luddites in the midst of industrial takeoff either for that matter. It shouldn't take the most farsighted social critique to understand that attacking shopfronts or throwing stones at police is not a winning formula. Moreover, these riots are both symbolically and actually different to, say, violent anti-cop protests in Baltimore or even the riots in London. Why? Because the latter could be understood as major social upheavals and protests deeply rooted in the outrage of whole communities. Like it or not, pseudo anarchist projectile throwers with their Banksy-lite iconography are seen as brattish. And not just by the right-wing press. There is a broader "counter-hegemonic" platform to be built by the left, one which can win "hearts and minds", so to speak. The right is very good at fighting the "war at home"; we should learn how to do this for the left.

I fully intend to go to People's Assembly meetings and marches. It's urgent that we show a united front against austerity. It's also extremely important that we start developing some more critical strategic skills. Our enemies in government surely already have. We need to understand why people vote Conservative. Sure, papers can lie, but only certain lies capture the imagination and articulate popular desires. What makes the myth of austerity so appealing? How can we build a counter-narrative from the ground up, with few allies in the old print media? All these are questions that we can ask at such events. We can also draw others into our conversation. But let's be honest: throwing a few stones proves nothing except that we have no answers and are unwilling even to pose the questions.

We need to look to countries in Latin America, and to Greece and Spain. There movements for social justice began commanding first pluralities and then wholesale parliamentary majorities (in some cases for decades) through peaceful community action, through strikes and marches, through holding meetings, and asking questions. They never won over the private media, and neither will we. So instead they went round the back of them, operating at every alternative social level, and eventually finding themselves challenging neoliberalism and austerity in local and often national government. Their trick was to convey the dignity and sense of justice of ordinary people in unconventional forms. That kind of dignity is rarely visible in the mainstream - which prefers to demonise working and unemployed people - but it is the truly insurrectionary truth. I sympathise with the fury of some left-wing activists. But if we are going to get anywhere we need to be smart, not just angry.




Tuesday, 5 May 2015

A Tory coup? It was Labour that puts its own head on the chopping block

A coup is apparently coming. At the New Statesman today Owen Jones writes of a plot hatched by the right-wing media and the Conservative Party to patch together the previous coalition and carry on much as they were before the election. However, as the ex-leading Party in government and quite possibly the largest in parliament, Cam & Co. will have every right to do so. Their shrill backing by large sections of the media - which has been scarily united in its viciousness toward Labour and the SNP - may be patently unfair. It is, however, to be expected from a power elite wedded to the Union and to free markets. Except, of course, in Scotland where - astonishingly - the pro-Union Murdoch press has swung behind... the SNP. Anyone but Ed, was how John Lanchester summed it up in his LRB article this week.

The problem with Jones's coup argument is he puts none of the blame for this at Labour's door. True, a Party polling 35% is limited in its power to challenge how its enemies think. But if Labour is to have any significant effect on the world, it will have to make strategic interventions on its enemies' weak points. Miliband did this - to a degree - during the hacking scandal. Basically, he kicked Murdoch when he was down and then retreated. It was a graceful, bullied-kid-in-the-school-playground move for which he is to be commended. But overall Labour has been scared of intervening in this way in moments of particular crisis and of weakness in the field of  political forces since 2010. Though there has been no shortage of moments ripe for intervention in British political life, Labour under Miliband has lacked the will power and sense of direction to challenge the bigger kids in the playground. Thus the false narrative of Tory austerity -which failed after 2012 - and the crooked story spun by Unionist elites during the Scottish referendum went unchallenged. No wonder the SNP has snatched the ball from a dithering Labour on both points.

Imagine this: after supporting unity in the Scottish referendum, Labour could have launched a home rule proposal, undermining the centralist and reactionary Tories whilst sidestepping the SNP threat. It didn't because the Miliband leadership lacks the basic cognitive mapping to challenge Tory myths, at least when it comes to the Union and to the economy. This comes partly from Miliband's eagerness - like so many "progressive" leaders since 1989 - to accept the present reality. Social-democratic tradition since the end of communism - perhaps even before - dictates that the right leads on sovereignty and economics.

Today's social democrats are the postmodern Stoics, fully at ease with natural and inevitable markets: "Sick and yet happy, in peril and yet happy, dying and yet happy, in exile and happy, in disgrace and happy." Recently, writers on the left have started talking of Pasokification: named for the unloved and unmissed Greek socialists, this is a process wherein a party of the traditional centre-left sinks rapidly from a position as the natural party of government to one of electoral oblivion. One would expect, at the very least, some heroic rage against the dying of the light here. But it turns out that - as with Nietzsche's last men - the most telling symptom of Pasokification is that those in its grip meet their fate with a sort of medicated contentment. "A little poison now and then: that makes for pleasant dreams. And much poison at the end for a pleasant death," he says. Not with a bang, then, but in a stupor. So goes European social democracy to the chop - drunk on its own self-deception and convinced to the last it stayed true to nature's and to history's laws. It will receive no courtesy from the triumphant Right it did so much to make comfortable.

If, however, Labour or other left parliamentary forces find they want to successfully intervene in the field of forces that constitutes politics they might have to say things that are actually unpopular - at least with the mainstream media. Of course, they must choose their moment. Antonio Gramsci's notion that the balance of political forces is in "unstable equilibrium" implies that - with strategic precision - an intervention can shatter that equilibrium and reshape it. Miliband has seemingly done all he can to avoid the risk of rocking the apple cart recently - an aversion that has meant losing out on important opportunities to reshape the field of combat. Moreover, he has gone to great, noisy lengths to dodge any association with the SNP. This strategy of refusal to open up the Party to criticism from the right is proving disastrous. The right-wing criticism comes in floods all the same, while Labour deliberately closes off its few routes to power. More broadly, this sticky electoral mess is indicative of the mire that has been sucking recent social democracy under. On past form, it is unlikely the British brand will be rekindling its fires in the next few days. If it is on its way to the chopping block, Labour at least is proving inebriated enough not to feel the sting.

The Tories and their media allies are simply exploiting a Labour weakness the leadership has done nothing to combat. Deja vu, anyone?

Friday, 1 May 2015

Austerity: The Almost Myth

So Labour "bankrupted" the economy by spending too much on welfare dependents? Let's look again at that claim, made by one very angry man  - along with the national media and the Tory party, repeatedly for five years - on TV this week. As is so often the case, Ed Miliband "stumbled" in response. Here's what he might have said in a more rational world.

Public debt fell in the early years of the Labour government and then increased as growth slowed in the late 2000s. See the proof here:

http://en.m.wikipedia.org/wiki/United_Kingdom_national_debt

In fact, welfare spending rose in absolute terms throughout Labour's time in power - though as a percentage of GDP it actually fell slightly. Channel 4 reports this here: 
http://www.channel4.com/news/welfare-bill-out-of-control-labour-reform  

This is important: spending as a proportion of GDP, in the context of an ageing and increasingly sick population, fell during Labour's tenure.

Why did the debt increase so precipitously after 2008? For one, growth collapsed and tax revenues declined. Expenditure on things like out-of-work benefits increased automatically  as a necessary result of a collapse of economic activity and a fall in total employment. This is inevitable in a downturn. 

But the crisis went deeper: over leveraged banks had to be bailed out and deposits secured in order to prevent financial meltdown. In 2010 the National Audit Office reported: 

"The scale of the support currently provided to UK banks has fallen from a peak of £955bn to £512bn, but the amount of cash currently borrowed by the government to support banks has risen by £7bn [to a total of £124bn] since December 2009."

That report is quoted here: http://www.theguardian.com/politics/reality-check-with-polly-curtis/2011/sep/12/reality-check-banking-bailout 

The Guardian, in the same report, found that the government had initially offered £1.2 trillion to the banks, presumably to secure confidence. The amount actually spent was £123.93 billion. How much of this gets paid back doesn't concern us here, since all I want to show is that it was this borrowing - as opposed long-term welfare expenditure and a culture of dependency - that increased the national debt. Here's Keynes biographer Robert Skidelsky in the Newstatesman:

"In short, the big holes in the public finances inherited by the coalition when it took office were the result not of misguided splurging, but of the sudden emergence of deep craters in the British and world economy. This is confirmed by a 2011 IMF report, which calculated that of the 37 per cent increase in UK public debt from 2007-2011, 25 per cent was due to loss of revenues, 7 per cent to support of the financial sector and only about 2 per cent to fiscal stimulus. Furthermore, it’s true that the rise in the deficit was somewhat higher than the OECD average, but this was because British governments were more dependent on revenues from the financial services sector."

Financial "exuberance" - and the accompanying waves of Minskyian fraud - stemmed from unsustainable profit expectations, themselves based on past profits made at higher rates of growth. Financial institutions took greater and greater risks across the world as profitability decreased in the real economy (due to the end of the IT consumer boom in the early 00s and spiralling oil prices). Essentially a "choke-chain effect" (James Galbraith) on growth was curtailing profitable investment, which led financial institutions to greater - and more fraudulent - lengths to secure higher returns. All it took was a downturn in US house prices to send mortgage securities prices downward and to presage a global banking collapse (it was very often European banks that were most exposed to these CDOs).

Have the Tories "sorted out Labour's mess" by cutting spending? Though they've decreased the spending deficit, the public debt has doubled relative to GDP because growth is sluggish and erratic and there is little to no renewed consumer demand built into the recovery. Moreover, the rest of the West is suffering from an absence of demand in the midst of continuing volatility. The government is withdrawing from the market, but private investors have no demand on which to base investment.

This is the harsh reality that refutes the neoclassical belief that government "crowds out" private entrepreneurs. What really happens is - in good times and bad - the state secures and expands markets. The state guarantees growing output by providing a safety net and a healthcare system. This makes private investment and growing demand by households possible. There is in fact no reason for the state to withdraw from this role. A strike by the holders of sovereign debt remains highly unlikely as long as the central bank (the Bank of England) controls interest rates. Moreover, there is no real reason for interest rates to rise. Inflation - which is broadly very low - doesn't need to be stamped out any time soon. Britain is not Greece. It has autonomy in its fiscal and monetary policy and can use both. The government can - and evidently does - live with high debts. The path to future growth - led not by speculative fraud in the financial sector and "asset-price Keynesianism" in homes and mortgages, but by worthwhile investment - lies in the public, not the private sphere.

The reality of Tory austerity, according Simon Wren-Lewis, is that the bulk of it has been postponed. The rate of cutting slowed significantly after 2012. This allowed the UK economy to grow - a bit. But growth has now halved. And the Tories are planning to cut a lot more next parliament. As Mark Blythe shows in his book about austerity, "expansionary contractions" (ie cutting to growth) don't work, ever. The so called "rational expectations" of creditors are a fantasy. If you command a printing press and a currency people want to hold in reserve, then you can always afford more debt. States are not like households. If public debt leads eventually to private wealth, eventually the scale of the public debt will decline relative to the size of the economy. That said, I don't think a bit of monetary stimulus (like quantitative easing) will finally end the crisis, because investment will remain cautious while volatile resource prices and financial risk prevail. A major New Deal conducted by the state is necessary. It ultimately takes the state to guarantee sustainable growth, not markets. The state doesn't "crowd out" markets but secures and sustains them. This is what happened in the US before WW2 and Europe after. Capital was essentially disciplined. This, incidentally, is what Varoufakis would like Europe to do when he talks about the ECB issuing bonds and giving the cash to the EIF. The alternative is drudgery as real wages decline, the state shrivels, and growth remains erratic, all in the name of an imaginary "return to normal" (to quote James Galbraith).


The risk of austerity is that it is a little more than a myth. Confidence may, as Krugman says, be a fictional driver of growth. But if austerity appears successful it will shape the future of politics for a long time. The mauling of Labour - and their own self-destructive commitment to austerity - is evidence of this.