George Osborne carries the Budget box, March 2012. Photograph: Getty Images
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Mehdi Hasan on why Austerity isn't working -- but no-one in the government is listening

There's nothing wrong with saying "I told you so".

Yesterday I returned to London from a family holiday in the United States - where a small stimulus has led to a growing economy and 25 consecutive months of job growth - to discover that the British economy has now re-entered recession, after shrinking a further 0.2 per cent in the first quarter of 2012. Or, as the Tory-supporting Sun put it on its front page today:

Official: Dip's a double

Don't say we didn't warn you. In fact, don't say I didn't warn you.

If any further evidence was needed that austerity isn't working, that cuts don't work, that George Osborne is a "kamikaze chancellor", this is it. Critics of the New Statesman's economics editor, David Blanchflower, must feel rather foolish right now. Once again, Blanchflower and the Keynesians are vindicated while Osborne and the Austerians are humiliated.

Surveying the empirical evidence from across the continent, Yahoo finance blogger Henry Blodget put it best:

IT'S OFFICIAL: Keynes Was Right

Blodget explained:

Now, this is not to say that the global debt-and-deficit situation is not a huge problem. It is. It is merely to say that, of the two painful ways to work our way out of the problem – "austerity now" or "stimulus now and cuts later" – the second one seems more effective.

In other words, based on the experience of the last five years, it seems that Keynes was right and the Austerians are wrong.

As I said, none of this should really come as a surprise to anyone as all of this was predictable - and predicted. As Paul Krugman has noted:

It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case – that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks – was the Keynesian position. The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite.

And now the results are in: Keynesians have been completely right, Austerians utterly wrong – at vast human cost.

But the Austerians won't give up without a fight. They seem to have two tactics. The first is to blame the lack of growth on anything other than the cuts - be it the euro crisis, the weather, health-and-safety regulations, the family dog, etc, etc. Yesterday I tweeted this quote from City AM editor Allister Heath, from June 2010:

The years ahead will be very tough - but there will be no double-dip recession made in Downing Street.

Heath responded with this tweet:

Unfortunately, I underestimated this government's competence and commitment to supply-side reforms. They haven't delivered.

Good of him to say so. But "supply-side reforms"? Er, the UK economy, like the global economy, is suffering from an epic lack of demand. Households aren't spending, banks aren't lending, companies aren't investing. "Red tape" isn't what's behind the record rate of unemployment or the absence of growth and confidence. The main reason why the UK economy contracted in the first quarter of this year is because there was a 3 per cent decline in the construction sector - driven, of course, by the Chancellor's crazy decision to slash capital spending.  

Even Heath's fellow Austerian, the Telegraph's Jeremy Warner, grudgingly acknowledges this point today at the end of a desperate if heavily caveated defence of Osbornomics and "consolidation":

When companies won’t borrow to invest, there’s a strong case for governments to do so in their place. And yet when you look at where the axe is falling hardest, it is on government investment – spending on schools, hospitals, roads, bridges, affordable housing, and so on. This is the easiest thing to chop, so that’s where the coalition has acted first.

In fact, this form of state spending should be doubled, tripled or even quadrupled. . .

Hear, hear!

The second tactic is to pretend that those of us who draw attention to the political and economic significance of this double-dip recession are somehow "enjoying" or taking "pleasure" from the catastrophic (lack of) growth figures. I've had lots of tweets from Tory trolls using this line of attack. This isn't just nonsensical and offensive but a brazen and desperate attempt to try and divert attention away from those damning figures, which deserve highlighting, and away from the Austerians in Westminster and Fleet Street, who deserve criticising.

We're also told by the cuts-defending Austerians that it is "irresponsible" to talk down the UK economy. But I, for one, won't take lessons in "responsibility" from those who happily, shamelessly and opportunistically talked down the economy when they were in opposition, going so far as to claim that the UK was on the verge of defaulting on its debts and making ludicrous comparisons between the British and Greek economies.

One of the presenters on ITV1's Daybreak programme tried this "You're far too pleased about the recession" tactic this morning, in an interview with Ed Balls. The shadow chancellor's response, however, was spot on:

Interviewer:  Well let’s talk about that then, talk about the recession, we are in a double dip recession, I guess you’re sitting there saying: ‘I told you so’?

Balls: Well I sat here on this sofa, one and two years ago and said if the government tries to cut spending and raise taxes too quickly, faster then other countries it will backfire. And the thing which makes me angry is that George Osborne and David Cameron were so personally just dismissive, they just said it was rubbish and now we are back in recession. Their plan has categorically failed, families and businesses are now really paying the price. That self-defeating austerity has put us through such pain and we need an alternative plan. We’ve got to get jobs and growth moving, they should’ve done this much earlier.

Showing anger at the coalition's arrogance, incompetence and failure to listen or respond is the right response to such questions. Now is the time for the Labour leadership to sit on the fence or split the difference or triangulate; now is the moment to channel the public's anger and discontent. It seems to be working for President Obama.

Remember: we are not all in this together. And the argument over the cuts isn't just about politics or economics; it's about real people's lives and livelihoods. Britons are suffering. According to new figures from the Trussell Trust charity, for example, the number of people visiting foodbanks for emergency food in the UK has doubled in the last year, to over 128,000 people.

So let's be clear: Ed Miliband is doing a fine job on phone-hacking, the Murdochs and Huntgate but these aren't the issues that will win him the next general election. The economy was, is and will continue to be the defining issue of this parliament - and, as yesterday's GDP figures conclusively demonstrate, the coalition government has made a mess of it. If the Labour leader is able to stand before voters in May 2015 and pull a Reagan, Cameron and Clegg will be in big trouble. And Osborne's much-hyped reputation as a master strategist will be buried for good.


Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.