UK Economy: Conspiracy or Cock-up?

Almost 5 years after the crash, the UK economy remains in the doldrums. Now even the IMF is critical of the UK’s austerity programme. But the government is not for turning from its basic pursuit of austerity plus miniscule photo opportunity gestures like letting small businesses off their National Insurance contributions for a period. But it isn’t working. Is it conspiracy or cock-up?

Or perhaps it is both. There is an underlying conspiracy to promulgate the theory which explains and justifies decisions which are clearly against the best interests of the mass of the population. The democratically elected leaders then cock things up by swallowing the theory whole, implementing its most outrageously inequitable measures and, aided and abetted by a largely collusive media, offering the formulaic explanations provided by the theory.

The austerity – stimulus argument about how to revive the economy was resolved 80 years ago by Roosevelt’s New Deal, on the basis of common humanity and sense, rather than economic theory. But such lessons have long been cast aside. They have been replaced by the conspiratorial theory which holds that giving the wealthy even more will be good for the long term development of the economy. The wealthy will necessarily invest their additional wealth and thus everyone will gain. Prior to financial deregulation, which was itself prompted by the theory as well as technology, there may have been some merit in that argument. But it no longer works. The additional investment now trickles down into speculation rather than the real economy, with no benefit to the common good.

For some illogical reason, the theory doesn’t rule out using taxpayers’ money to save the banks from the consequences of their reckless strategies. Nor does it rule out refinancing the banks with taxpayers’ money in what is referred to euphemistically as quantitative easing (QE), but is in truth robbing the ordinary tax payer to finance the wealthy. The theoretical justification is that putting more money into the banks will enable them to lend to business. But lending to businesses in the real economy is not the most profitable banking business. So QE has little impact on the real economy.

What small businesses need is the confidence that the markets they serve are robust and growing. Then they would seek to invest to take advantage of that growth. But if there is no such confidence, there would be no point building new capacity and businesses would not invest. Making finance available under those circumstances is what Galbraith described as trying to push the economy with a piece of string. The only ones who gain confidence through the conspiratorial theory are the bankers and the wealthy.

To create confidence in the real economy, the theory must be reversed. Real jobs must be the focus, so stimulus rather than austerity must be the route. But common sense requires we be more specific than is suggested by terms such as fiscal stimulus. Investment must be in the real economy, rather than swaps and derivatives. For example, investing public money in the housing market will put up the price of houses. Investing in house building will create jobs, provide much needed new homes and reduce the price of housing.

The real economy is crying out for real investment. And people are crying out for jobs. The only thing that stands in the way is the theory which is promulgated by the plutocratic 1% and a government which is either gullible, or part of the conspiracy.

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