Skinny size me: some women dramatise their inner conflict by shedding weight. Photograph: Ben Stockey
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The anorexic statement

Trust me, notice me, feed me: every female body conveys a message. So, when a woman starves herself, what is she saying?

I knew a woman whose job it was to take anorexics to the swimming pool. She was an occupational therapist: eating disorders were her field. She worked at a nearby clinic and we bumped into one another from time to time.

I found myself curious about her work, or more truthfully about her patients, those singular modern-day martyrs to the cause of their own bodies. Without quite knowing why, as I have grown older I have become more interested in – it could even be said, more respectful of – what might be called the anorexic statement. Perhaps it’s because, as the 45-year-old English mother of two children, my body has little power of provocation or utterance; or rather, that what it’s said or tried to say through the years hasn’t seemed to have added up to all that much. Quite what constitutes the anorexic statement I’m not entirely sure. All the same, it has a great power of disruption. It’s a stray spoke under the wheel of things that otherwise have the capacity to hurtle on headlong: family life, fashion, the destiny of the female body. The statement might be: help me. Or it might simply be: stop.

My therapist acquaintance herself had not been allowed to be picky in life, growing up in a family of brothers on a farm in the Australian outback. She knew how to shoot, drive a tractor, ride a horse bareback. She had left that rough home and come to the UK, where every couple of years for the sake of change she moved job and town – Slough, Birmingham, Chelmsford – though her solitude and her line of work did not alter. She neither sought nor seemed to expect much in the way of pleasure. In the evenings she made a sandwich and read a book in her rented room; her main meal was lunch in the canteen at the clinic, where food was plentiful and cheap. This somewhat joyless attitude to nourishment could come as no surprise, given that she spent her days among females who regarded the ingestion of a teaspoonful of peas as a physical and spiritual crisis. Once a week she led them to the poolside, skeletal and pale, for all the world to see. Even at the swimming pool these curious beings detected the threat of penetration, of the outside coming in. They didn’t want to get in the water, not, apparently, because they felt self-conscious or exposed, but for fear that they might swallow some of it without its calorific content having been established.

The easiest thing that could be said about my acquaintance was that she herself was impenetrable. Her choice of career must have sprung from some initial attraction to or sympathy with the anorexic state, but most often what she appeared to feel for her waifish charges was irritation, even anger. Anger is a common response, it seems, to the anorexic statement. At the very least, returning from a day spent on the receiving end of that statement, my acquaintance was hard put to feel – as they say – good about herself. If the anorexic is someone for whom the relationship between female being and female image must, on pain of death, be resolved, it may be that she denies that resolution to those who cross her path. They become the witnesses of her vulnerability; as such, she is more real than they. Like with the ascetic of old, her self-denial is a form of chastisement, yet the extremity of her appearance is confusing. Being female, it seeks attention, but of an unusual kind. It asks to be mothered – yet what if its aim is indeed to challenge the reality of the mother-figure and overpower it, to triumph over her, to consign her to flesh and steal her image? The anorexic is out to prove how little she needs, how little she can survive on; she is out, in a sense, to discredit her nurturers, while at the same time making a public crisis out of her need for nurture. Such vulnerability and such power: it brings the whole female machinery to a halt. My acquaintance had tales of rudeness and tantrums and sulks, of behaviour more commonly read about in childcare manuals (of the kind whose purpose, we are told, is to “test the boundaries”), even of a degree of personal insult which at the very least, I suppose, mothers aren’t paid to tolerate. She had no children of her own. And so, in an admirable interpretation of the social contract, she recognised she had something in that line to give.

Jenefer Shute offers some riveting descriptions of such interactions, between the anorexic inpatient Josie and her carers, in her novel Life-Size. “In the body,” Josie chillingly muses, “as in art, perfection is attained not when there’s nothing left to add, but when there’s nothing left to take away.”

Armed with this credo, she can exercise contempt on everyone around her (“They say I’m sick, but what about them, who feast on corpses?”), in what becomes a radical reliving of her primary experiences of nurture. And it needs to be radicalised: this is the moral value of the anorexic statement, that it asks questions not just of mothers or fathers or fashion editors, but of the whole societal basis for the female image. This time around, Josie can speak her mind. She can criticise the people who care for her; she can re-experience the powerlessness of childhood and know it for what it is. So unpleasant is she to the “freckled cow” who nurses her that she finally gets the reprimand she has apparently been asking for:

“Josephine, I must ask you please not to speak to me like that. I’m not your servant.” And then, unable to contain herself: “And would you please look at me when I talk to you? It really gets on my nerves.” Coldly, victoriously, I remain precisely as I am. She really should have more control.

Soon after, however, the 68-pound tyrant, having agreed at last to eat something or be force-fed through a tube, makes a revealing request of her nurse: “I want you to feed me,” she says.

My acquaintance found it hard to muster much interest in herself at the day’s end. She rarely went out or saw people: it was as though her work had bled her of confidence. She sought not public interactions but the determined security of her private boundary. In the evenings she changed into loose clothes, shut herself in her room, shut herself into a book. She wanted to be where no one could demand anything of her, like a depleted mother, except with none of the prestige of motherhood. She never kept company with men, and her female world was wholly predicated on an insidious notion, that certain women are there to give attention and others to receive it. Sometimes it seemed that her patients had indeed stolen her image and left her with nothing to trade, nothing to barter with for some share of the world’s interest. They had stolen her image and left her a mere body that could find no reflection or definition for itself. She went back home for a few weeks on holiday and returned browner, more animated, and heavier. All that meat they went in for, meat roasted over a fire and served at every meal. But more to the point, a world in which food was an entitlement and a human bond.

In her own world food had become a weapon: her evening sandwich and her indifference were a kind of savourless pacifism she exercised against it. She spent her days among people who denied themselves food in order to experience, perhaps, power, whose apparent intention to make themselves invisible made them, in fact, visible, who had discovered that by becoming less they became more. And no­where was this clearer than in the fact that they required her as their witness, for disappearing was no fun unless someone noticed you’d gone. But if anyone was disappearing, if anyone was becoming invisible, it was she.

The question of how she had come to be stranded in this place remains difficult to answer, but its source may lie in the very practicality – the tractors, the horses – she had crossed the world to escape. Denied her own experience of femininity, she had perhaps embarked on a kind of pilgrimage to find and serve these notable victims to the riddling perversity of feminine values. She could help them, sit with them while they wept and shrieked over a teaspoonful of peas, she who had never had the temerity to question or refuse anything she had been given; she who was not important enough, as it were, to be anorexic, for the hieratic significance of the anorexic body depends on it having been ascribed a value in the first place. Had she tried to starve herself on the farm where she grew up, she might simply have died: her protest, in any case, would not have been understood. She had taken photographs of this place, on her recent trip home. In order to capture its isolation, she had photographed it from a distance, recording the miles of surrounding scrubland in a sequence of separate frames that she laid one next to another across the table in a long connecting strip. Amid these featureless wastelands she defied me to locate her home, and though my eyes searched and searched the landscape it was true that I could find no evidence of human habitation. She laughed, with an unmistakable and strangely exhilarated pride, and laid her finger over a low brown shape that crouched amid the boulders and bushes that extended all around it, on and on to the white horizon. It was so small her fingertip covered it. “There it is,” she said.

It may seem superfluous for a 45-year-old mother-of-two to say that she does not exult in the life of the body, but let’s just call it a place to begin. At the very least, as a statement, it raises numerous lines of inquiry. One might be: is it obligatory, or even a moral duty, to take pleasure in one’s own physical being? Leaving aside for a moment the question of what definition of pleasure one could possibly arrive at in this particular hall of mirrors, is the value of the physical quest in any way comparable with that of the artistic, the emotional, the spiritual?

I understand the anorexic’s notion of pleasure far better than the hedonist’s. Sometimes it has seemed to me that the second kind of pleasure is consequent on the first, that the life of sensation can be accessed only from a place of perfect self-discipline, rather as strict religious practices were once believed to constitute the narrow path to heaven. The anorexic, like the ascetic before her, publicly posits the immolation of the flesh as a manifestation of a primary physical discontent she is on her way to escaping: she represents a journey whose starting point is disgust. Body is found to be not only intolerable to but weaker than mind – how, then, can its desires and yearnings be taken seriously? The anorexic statement suggests a second body, one that will be painstakingly encroached on and attained; and hence, a second template for desire. This second body will belong to its owner as the first did not: its desires, therefore, will be experienced as not shameful, but true.

The female form is inherently susceptible to this duality, but the difficulty with the anorexic statement is that once it becomes open to other readings it breaks down. At some point in the journey a line is crossed: the slim body becomes the freakish starved body, and one by one the anorexic’s grounds for superiority are discredited and revoked. She is not beautiful but repellent, not self-disciplined but out of control, not enviable but piteous, and, most disappointing of all, she is publicly courting not freedom and desire but death. Even she may find these things difficult to believe. How to go back, on that journey? How to retrace one’s steps? For in getting where she needed to go the anorexic had to sacrifice the concept of normality. In a manner of speaking she sold her soul. She can never be “normal” about food or flesh again. So, how is she meant to live?

If the anorexic arouses irritation, even anger, it may be this quitting of normality that is to blame, because the female management of normality is a formidable psychical task from which most women don’t feel entitled to walk away. By quitting it she exposes it, she criticises it as a place to live, and moreover she forces each woman who passes her way to choose between denial and recognition of her statement, disgust.

Is it disgusting to be a woman? Menstruation, lactation, childbirth, the sexualisation of the female body – in recognising these things as her destiny, a girl is asked to forget everything that her prepubescent instincts might formerly have suggested to her. In becoming female she must cease to be universal, and relinquish the masculine in herself that permitted her as a child to find the idea of these things disgusting indeed. Likewise that masculine is now embodied for her in men, so the question becomes – do men find women disgusting? The anorexic statement dispenses with that perspective. It returns the woman to the universality of the child, and from that fusion formulates itself: I find myself disgusting.

If it has become a cultural cliché that women want to be thin more than they want to be loved (the three most cherished words these days, so the saying goes, being not “I love you” but “You’ve lost weight”), and moreover that they want to be thin not for men but for one another, the general observer might be tempted to view this as making the case for male innocence (at last!), even male redundancy.

Yet, looked at another way, the male and the preponderance of male values are perhaps more culpable in the incrimination of the female form than ever. An eating disorder epidemic suggests that love and disgust are being jointly marketed, as it were; that wherever the proposition might first have come from, the unacceptability of the female body has been disseminated culturally. Is it possible that disgust has finally got, in the famed male gaze, the upper hand? From whom, after all, has a woman ever wished to hear the words “I love you” but a man?

In Life-Size, Jenefer Shute posits the anorexic state as having two separate sources, one in the female (subjective, mother) and the other in the male (objective, father). Between them they engender in the anorexic subject the confusion between being and image of which one might suppose her to be merely an extreme cultural example. Mother – the female body – is indeed the source of disgust, but it is father – if one can be permitted the leap of seeing father as analogous with male and, indeed, with society – who makes that disgust public and hence catalyses it into shame. Without father, mother might merely have passed her disgust silently on to daughter, where it would have remained as an aspect of her private, interior being. But father brings it to the surface: it is something not just felt but now also seen. These confirmations, in Shute’s narrative, of interior suspicion (am I disgusting?) by outward commentary (yes, you are) are fatal to female self-perception in ways that might seem obvious but are none­theless intractable.

Outside and inside – image and being – are now held to be one: the girl/woman revisits and tests this impossibility by becoming the observer – the male – herself, looking at and remarking on the bodies of other women. Naturally, the discovery that image can be changed is not new: it is and always has been part of becoming a woman, in a sense that, although slenderness has long been a feminine ideal, self-hatred and the compulsion to starve oneself to death have broadly not. The question of disgust returns, accompanied by its shadow, the question of pleasure.

A personal admission: not long ago, in a period of great turmoil, I lost a considerable amount of weight. The first thing to say about this is that I was unaware, inexplicably, that it had happened. That my clothes no longer fitted passed me by: I noticed it only because other people told me so. They appeared shocked: each time I met someone I knew, there it would be, shock, a startled expression on the face. At first, I was startled in turn. They were not seeing who they expected to see; who, then, were they seeing? After a while I got used to it: indeed, I came to expect, almost to require it. A newborn baby needs to be mirrored by another human being in order to grasp that she has an outward surface, that this “self” has an appearance, that her image speaks. Through the shock of others I learned that I, too, had been shocked, that I was no longer the person I once was. My image was speaking, to me as well as to other people, telling me things I did not yet appear to know or realise.

But eventually the question of “normality” returned, as it must in the life of a 45-year-old mother-of-two. Stop, help me, feed me: this may have been my cry, but the truth was there was no one, any more, to answer. There could be no illusion, as an adult; I had left it too late to stage this apotheosis, this defeat of the first body, predicated as it is on the expectation of rescue. I had to draw back from it myself. And this was where the problem arose, because, like the anorexic, I found I could not retrace my steps, could not, as it were, go back to sleep. For years I had lived in my body half-consciously, ignoring it mostly, dismissing its agendas wherever I could, and forever pressing it into the service of mental conceptions that resulted, almost as a by-product, sometimes in its pleasuring and sometimes in its abuse. People were always telling me I should do yoga: this was one of the running jokes I had against my own flesh, for the idea that I would suspend the intellectual adventure of living even for one hour to dwell in the dumb and inarticulate realm of the auto-corporeal was as unappealing as that of spending an evening with someone I disliked. Now, as the weeks passed, instead of shock, my appearance was beginning to elicit milder manifestations of concern. I didn’t know what it meant: had I changed again? Was I no longer fragile and vulnerable? I had no idea. Never before in my life had I dared to be fragile, and all I knew was that I wasn’t ready to leave what I had become. “Have you ever thought of doing yoga?” someone said.

As a teenager I had been tormented by hunger and by an attendant self-disgust, for I saw in other girls a balance, an openness of form, that suggested they had nothing inside of which they need be ashamed. Their bodies were like well-schooled ponies, handsome and obedient, whereas I had a monster inside me whose appeasement was forever disrupting the outward surface of life. It craved so many things it could barely discriminate between them, and so indiscrimination – the failure to distinguish between what mattered and what didn’t, what helped and what didn’t, what it needed and what just happened to be there – became its public nature. It wanted, in fact, what it could get, in the light of what it couldn’t.

How thoroughly the tangible and the in­tangible confused themselves in those years. Creativity, the placement of internal material into space, the rendering tangible, became my weapon against that confusion.

When I left my boarding school – the blue serge uniform and the Cambridgeshire drizzle, the plates of stodge that were so predictable and real, the torturing sense of female possi­bilities that were not – I learned to manage the monster, more or less. Like the first Mrs Rochester it had a locked room of its own, from which it sometimes succeeded in breaking free to rend into shreds my fantasies of femininity, but I had set my mind on higher things. By locking up the monster I was making myself at heart unfree: what did I know of freedom in any case? I was accustomed to fantasy and to the safety – albeit uncomfortable – it supplied, and the notion of an integrated self was the most uncomfortable fantasy of all. In a sense, it was the monster: I could neither kill it nor live with it, and so there it remained, caged, bellowing and banging intermittently through the years, creating perhaps the sense of something amiss in those who came close to me, but caged all the same.

Yoga, understandably enough, was out: nothing could have persuaded me to enter that cage armed only with a sun salute. But my sudden emaciation in middle age did bring me into contact with the monster again, for, amid all the other losses, there in the rubble of the desecrated life, I appeared to see it lying dead at my feet. The Jungian notion of the “middle passage”, in which at mid-life all the templates for self expire or fall away, in which with sufficient destruction one has a chance to return to the blankness of birth, might have explained that death well enough to avoid detection: it simply went up in the fire, the horrible secret, along with everything else. And here, after all, was a chance to be free of my own image, the bind in which my body had held me for all these years, because, while wanting more than anything to be feminine, I had only and ever found my own femininity disgusting. This image, knitted together over time by questions and confirmations (Am I disgusting? Yes, you are), was one I was now prepared to sustain: I was poised to make the anorexic statement, to vanish, to let image and being finally become one.

But of course, no such thing occurs: there is no “letting”, no seamless transposition of the flesh. The anorexic body is held in the grip of will alone; its meaning is far from stable. What it says – notice me, feed me, mother me – is not what it means, for such attentions constitute an agonising test of that will, and also threaten to return the body to the dreaded “normality” it has been such ecstasy to escape.

For the first time since my teenage years I found myself tormented again by hunger: the monster had awoken from its slumber, bigger and more ferocious than ever. The route back to normality being blocked, I have had to devise other ways of getting there, or of seeming to. My occupational therapist acquaintance tells me that many of her patients are women of my age, women who have suddenly tried to slip the noose of their female flesh once its story – menstruation, lactation, childbirth – has been told in all its glory and shame.

When I relate this to my female friends they take it humorously, rolling their eyes and laughing, gallantly owning up – oh yes, they say, we know – to monsters of their own. Most of them haven’t delivered themselves into its jaws quite so thoroughly as I have; their dislike of their own bodies is a kind of low-level irritant, a necessary component of the female environment, but to think about it too much would spoil everyone’s fun.

I don’t want to spoil anyone’s fun, either, though for now I have spoiled my own. It did seem, for a while, as though the death-state of physical denial might contain the possibility of transcendence, the chance to step out of my self-disgust and make true contact at last: contact of my “real”, my second, self with the outer world. That I felt this had always been denied me, that in the negotiation between being and image all, for me, had been lost, was a stark kind of truth to face up to. Passing other women in the street these days, I seem to hear their bodies speaking. A lot of what they say is unclear to me, or at the very least so foreign that it takes me a moment to translate it. For instance: I accept myself. Or: respect me. The ones I like best are the ones that say, trust me. What I will never be able to hear unequivocally, whether whispered or shrieked, is: desire me. Notice me, feed me, mother me. Passing by the anorexic girl, stepping lightly and silently in the shadows, I hear her message and in a way I salute her for it. Other bodies have other messages, but for this one I have ears.

Rachel Cusk is most recently the author of “Aftermath: on Marriage and Separation” (Faber & Faber, £12.99)

This article first appeared in the 05 November 2012 issue of the New Statesman, What if Romney wins?

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The optimism error

We are told that austerity has triumphed and that the British economy is running full steam ahead. The reality is more alarming.

In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.

The unpalatable truth is that austerity in the face of the private-sector collapse of 2008-2009 has weakened our ability to produce output. Britain has been left overfinancialised, overborrowed and underinvested. It is not surprising that it is exceptionally exposed to any global downturn.

Before John Maynard Keynes it was believed, by economists at least, that a competitive market would normally produce full employment. As the facts of experience appeared to indicate otherwise, economists, prompted by Keynes, sharpened up their theory. A market economy would ­always lead to full employment provided wages and prices were flexible. Workers, if facing unemployment, had only to accept wage reductions to “price themselves back into work”.

However, as it seemed unrealistic to suppose that workers would do this – or do it quickly enough – government policy could short-circuit the painful process of adjustment. When a slump threatened or occurred, a government could stimulate spending by cutting interest rates and by incurring budget deficits. This was the main point of the Keynesian revolution.

This policy ran from the 1950s to the 1970s. It was overthrown in the 1980s, when unemployment prevention became confined to interest-rate policy, eventually run by the central bank, not the government. By keeping the rate of inflation constant, the monetary authority could keep unemployment at its “natural rate”. This worked quite well for a time, but then, following the widespread failure of the banking system, the world economy collapsed in 2008.

In a panic, the politicians, from Barack Obama to Gordon Brown, took Keynes out of the cupboard, dusted him down, and “stimulated” the economy like mad. When this produced some useful recovery they got cold feet. “Keynes,” they said, “you’ve done your job. Back in the cupboard you go.” I wrote a book at the time called The Return of the Master. A reviewer pointed out that the Master had returned for six months only.

Why had the politicians’ nerve failed and what were the consequences?

The answer is that in bailing out leading banks and allowing budget deficits to soar, governments had incurred huge debts that threatened their financial credibility. It was claimed that bond yields would rise sharply, adding to the cost of borrowing. This was never plausible in Britain, but bond yield spikes threatened default in Greece and other eurozone countries early in 2010. Long before the stimulus had been allowed to work its magic in restoring economic activity and government revenues, the fiscal engine was put into reverse, and the politics of austerity took over.

Yet austerity did not hasten recovery; it delayed it and rendered it limp when it came. Enter “quantitative easing” (QE). The central bank would flood the banks and
pension funds with cash. This, it was expected, would cause the banks to lower their interest rates, lend more and, by way of a so-called wealth effect, cause companies and high-net-worth individuals to consume and invest more. But it didn’t happen. There was a small initial impact, but it soon petered out. Bank lending, an important index of recovery, in fact went down as the institutions sat on piles of cash and the wealthy speculated in property.

So we reach the present impasse. Events have confirmed that a competitive market economy is subject to severe collapses, and the effects of these linger in the form of elevated unemployment, lower output, lower productivity and increased poverty. At the same time, however, counter-cyclical policy is disabled. Monetary expansion is much less potent than people believed; and using the budget deficit to fight unemployment is ruled out by the bond markets and the ­Financial Times. The levers either don’t work, or we are not allowed to pull them. Where do we go from here?

 

The present situation

The first thing is to establish where we now are. How much recovery has there been in Britain? Economists try to answer this question with reference to the output gap – the difference between what an economy is actually producing and what it can produce. The OECD’s most recent estimate of this gap in the UK stands at a negligible -0.017 per cent. We might conclude from this that the British economy is running full steam ahead and that we have, at last, successfully recovered from the crash. This is the basis of George Osborne’s triumphalism. His critics, including myself, have been proved wrong. His austerity policies have worked. Or so we are told.

But such a conclusion would be premature. Although we are producing as much output as we can, our capacity to produce output has fallen. This can be shown by comparing the current economic situation to where we would expect to be, according to the historic trend.

From this perspective, championed by the Oxford economist Simon Wren-Lewis, the position is far less rosy. Growth in output per person in Britain (roughly “living standards”) averaged 2.25 per cent per year for the half-century before 2008. Recessions in the past have caused deviations downward from this path, but recoveries had delivered above-trend growth, lifting us back up to the previous path. One can say that the “business cycle” oscillates between errors of pessimism and errors of optimism. In other words, the loss of output is temporary.

This time it was different. The recovery from the financial crisis was the weakest on record, and the result of this is a yawning gap between where we are and where we should have been. Output per head is between 10 and 15 per cent below trend.

We are faced with a puzzle. If the output gap is as small as the OECD believes, then the British economy appears to have lost much of its productive potential. It is no longer a case of demand falling short of supply, leaving a surplus of workers and capital equipment. The supply is no longer available: we have lost eight years’ growth of productivity. Between 1971 and 2007 productivity growth averaged 2-3 per cent a year. Since the recession started it has been close to zero. Why is it that the recession turned spare capacity into lost capacity? One answer lies in the ugly word “hysteresis”.

 

Hysteresis

This is an idea borrowed from physics. If an insulated wire is wrapped around an iron bar, and an electric current is then passed along the wire, the iron bar becomes magnetised. Some of this magnetism remains even after the current has been switched off. A shock has a long-lasting effect. This is labelled hysteresis.

An economy experiences hysteresis not when output falls relative to potential output, but when potential output itself falls as a result of a recession. What happens is that the recession itself shrinks productive capacity: the economy’s ability to produce output is impaired.

The intuition behind it is simple enough: if you let a recession last long enough for capital and labour to rust away you will lose growth potential, on account of discouraged workers, lost skills, broken banks and missing investment in future productivity. By not taking steps to offset the negative shock of the recession with the positive shock of a stimulus, the coalition government cost the country 10 per cent or more of potential output.

The phenomenon of hysteresis is not ­necessarily captured by high levels of “headline” unemployment. In fact, low levels of unemployment may reflect low productivity growth, as employers prefer to use cheap workers to investing in machines: unemployed workers may be re-employed in part-time or minimum-wage or zero-hour contract jobs. Much of the new private-sector job creation lauded by the Chancellor is exactly in such low-productivity sectors. The collapse of investment is particularly serious, because investment is the main source of productivity.

The challenge for policy is to liquidate the hysteresis – to restore supply. How is this to be done?

 

Blockage of policy

An economic recession is precipitated by a fall in private spending, be it investment or consumption. It can be countered by monetary and fiscal policy, aiming either to stimulate private spending or to replace it temporarily by public spending. On the monetary front, the bank rate was dropped to near zero; this not being enough, the Bank of England pumped out hundreds of billions of pounds between 2009 and 2012, but too little of the money went into the real economy. As Keynes recognised, it is the spending of money, not the printing of it, which stimulates productive activity, and he warned: “If . . . we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips ­between the cup and the lip.”

That left fiscal policy. Fiscal policy can fight recession by cutting taxes or increasing public spending. Both involve deliberately budgeting for a deficit. In Britain, any possible tolerance for a deficit larger than the one automatically caused by a recession was destroyed by fearmongering about unsustainable debt. From 2009 onwards, the difference between Labour and ­Conservative was about the speed of deficit reduction. The contribution that deliberate deficit budgeting might make to recovery was never mentioned, except by unreconstructed Keynesians.

So we now have a situation in which the main tools available to government to bring about a robust recovery are out of action. In addition, sole reliance on monetary policy for stimulus creates a highly unbalanced recovery. The money the government pours into the economy either sits idle or simply pumps up house prices, threatening to re-create the asset bubble that produced the crisis in the first place. We already have the highest rate of post-crash increase in house prices of all OECD countries. This suggests that the next crash may not be far off.

 

The public accounts trap

From 2009 onwards the main obstacle to a sensible recovery policy has been the obsession with balancing the national budget. A government can finance its spending in one of three ways: it can raise taxes, borrow from the private sector, or borrow from the Bank of England (that is, “print money”). Each has advantages and disadvantages, but public opinion has decided that the first of these – covering all spending by taxes – is the only “honest” way. In popular discourse, borrowing signifies a “deficit”, and a particular horror attaches to deficits, because they suggest the government is not “paying its way”. “We must get the deficit down” has been the refrain of all the parties.

Printing money to finance public investment has been suggested by both the Labour leader and the shadow chancellor as a way to get round the borrowing constraint. Its advantage is that it wouldn’t directly increase the national debt, because the government would only owe the money to itself. On the other hand, it might destroy confidence in the state’s ability to control its spending, and it would jeopardise the independence of the central bank. So, printing money to pay for public spending should only be a remedy of the last resort.

It is right to be concerned about a rising national debt (now roughly £1.6trn). But the way to reverse it is not to cut down the economy, but to cause it to grow in a sustainable way. In many circumstances, that involves deliberately increasing the deficit. This is a paradox too far for most people to grasp. But it makes perfect sense if the increased deficit causes the economy, and thus the government’s revenues, to grow faster than the deficit. If the economy is in the doldrums, practically all forms of government expenditure should be welcomed, as they utilise idle resources.

In our present situation, with little spare capacity, the government needs to think much more carefully about what it should be borrowing for. Public finance theory makes a clear distinction between current and capital spending. A sound rule is that governments should cover their current or recurrent spending by taxation, but should borrow for capital spending, that is, investment. This is because current spending gives rise to no government-owned assets, whereas capital spending does.

If these assets are productive, they pay for themselves by increasing government earnings, either through user charges or through increased tax revenues. If I pay for all my groceries “on tick” my debt will just go on rising. But if I borrow to invest in, say, my education, my increased earnings will be available to discharge my debt.

Covering current account spending by taxation is at the heart of the balanced budget rule. But as Thomas J Sargent, certainly no Keynesian, wrote in 1981 (Federal Reserve Bank of Minneapolis, Research Department Working Paper W): “The principles of classical economic theory condone deficits on capital account.”

Now is an ideal time for the government to be investing in the economy, because it can borrow at such low interest rates. But surely this means increasing the deficit? Yes, it does, but in the same unobjectionable way as a business borrows money to build a plant in the expectation that the investment will pay off. It is because the distinction between current and capital spending has become fuzzy through years of misuse and obfuscation that we have slipped into the state of thinking that all government spending must be balanced by taxes – in the jargon, that net public-sector borrowing should normally be zero. George Osborne has now promised to “balance the budget” – by 2019-20. But within this fiscal straitjacket the only way he can create room for more public investment is to reduce current spending, which in practice means cutting the welfare state.

 

A British Investment Bank

How can we break this block on capital spending? Several of us have been advocating a publicly owned British Investment Bank. The need for such institutions has long been widely acknowledged in continental Europe and east Asia, partly because they fill a gap in the private investment market, partly because they create an institutional division between investment and current spending. This British Investment Bank, as I envisage it, would be owned by the government, but would be able to borrow a multiple of its subscribed capital to finance investment projects within an approved range. Its remit would include not only energy-saving projects but also others that can contribute to rebalancing the economy – particularly transport infrastructure, social housing and export-oriented small and medium-sized enterprises (SMEs).

Unfortunately, the conventional view in Britain is that a government-backed bank would be bound, for one reason or another, to “pick losers”, and thereby pile up non-performing loans. Like all fundamentalist beliefs, this has little empirical backing. Two relevant comparators – the European Investment Bank and Germany’s KfW (Kreditanstalt für Wiederaufbau) – show that, in well-regulated financial systems, such banks pay for themselves. Neither bank has had to go back to its shareholder(s) to raise fresh money to cover losses. The EU is setting up a European Fund for Strategic Investments, which, with a capitalisation of €21bn, is expected to lever at least €315bn of investment over the first three years.

George Osborne has rejected this route to modernisation. Instead of borrowing to renovate our infrastructure, the Chancellor is trying to get foreign, especially Chinese, companies to do it, even if they are state-owned. Looking at British energy companies and rail franchises, we can see that this is merely the latest in a long history of handing over our national assets to foreign states. Public enterprise is apparently good if it is not British.

Britain already has two small state investment banks – the Green Investment Bank (GIB) and the British Business Bank. But the Treasury is so obsessed with avoiding any increase in the deficit that, up to this point, it has deprived these newly formed institutions of any power to borrow. This has restricted their investment potential. The Green Investment Bank was capitalised with £3.8bn of public funds in 2012; it has so far invested £2bn. Now the government proposes to privatise the GIB, because “it is necessary to move the bank off the public balance sheet if it is to arrange additional funding through borrowing”. The same fate no doubt awaits the British Business Bank, set up to channel money to SMEs.

Apart from exposing its unjustified belief that public investment must be loss-making, the Treasury’s stance is an artefact of its insistence that there should be no net borrowing. It was to avoid this grave effect on public investment that Gordon Brown, as chancellor, was drawn into the large-scale Private Finance Initiative, when there were cheaper financing mechanisms available.

Setting up a British Investment Bank with enough borrowing power to make it an effective investment vehicle is the essential first step towards rebuilding supply. Distancing it from politics by giving it a proper remit would create confidence that its ­projects would be selected on commercial, not political criteria. But this step would not be possible without a different accounting system. The solution would be to make use of comprehensive accounting that appropriately scores increases in net worth of the bank’s assets. The British Investment Bank I envisage would only finance investment in productive assets: although its borrowing would show up in the public accounts, it would be financed by revenue from its own activities. This is fundamentally different from tax-financed debt, and fully in line with the conventional theory of public finance outlined above.

Has the Chancellor the courage to grasp the opportunity?

He can justifiably congratulate himself on having avoided the worst disasters to which Treasury accounting rules and narrow ideology could have led him. But in the non-political recesses of his mind he must understand that the recovery over which he has presided is incomplete, fragile and, above all, unfair.

The first necessary step is to reform the way we do our national accounts, in order to dispel the deficit and debt phobia that blights sensible policy.

Robert Skidelsky is a cross-bench peer and a leading biographer of J M Keynes. His most recent book is “Britain Since 1900: a Success Story?” (Vintage)

This article first appeared in the 14 January 2016 issue of the New Statesman, David Bowie