If you're comparing the economy to a handbag, you don't understand the economy. Or handbags. (Photo: Flickr/varga.halec)
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Nation-states aren't households: debating their economies as if they are is stupid

Our economic debate is conducted in terms of household budgets - a handbag economy. But the economy isn't a handbag, and this "debate" closes down real alternatives to the neoliberal consensus. 

Politics is becoming unpredictable, we are told, yet as the election approaches, political interviews have started to follow an identical script. The party leader or minister in question announces their policy: lowering student fees, say, or building social housing. Immediately the interviewer barks back: ‘And how are you going to pay for that?’

On Radio 4’s Today, on Question Time, even on Channel 4 News, politics is now universally presented as a household budget. The BBC’s Robert Peston responded to Ed Miliband’s announcement on student fees with a characteristic raised eyebrow and sucking-in of breath: “To be a credible commitment - at a time when the public sector deficit is £91bn - Labour would have to find a new tax to cover the significant cost … so Ed Balls has been asked to make the sums add up”. Credibility, covering costs, sums adding up: this is the banal weekly-shop lexicon of the contemporary political imagination. Having signed up to the Coalition’s priority of a balanced budget, Ed Miliband has explained that he will ‘pay for’ the policy with a tax on pensions. ‘Good lord, where would you get the money from for that?’ was Nick Ferrari’s reply to Natalie Bennett’s plan to build 500,000 new social homes.

This line of questioning sounds so much like straightforward common sense that we are scarcely aware of the stealthy alchemy of consensus-formation that has produced it. The Coalition has repeated its austerity mantra with admirable message discipline. The nation has maxed out its credit card, the story goes; we need to pay down our debts, balance the books and live within our means. After five years, these myths masquerading as reality checks have become thoroughly internalised by politicians, the media, and the public. Even the Greens, ostensibly the only party now thinking outside the neoliberal box, are trapped in this paradigm, stressing that their plans will be ‘fully costed” in their manifesto.

But all this is economic bunk. Government spending is not a zero sum game in which individual policy costs must be matched by corresponding ‘savings’ elsewhere. Governments can raise money not only through taxation but also by borrowing, creating money, and investing for growth. Contrary to his proclamations, Osborne has merrily carried on borrowing billions, not only because he’s a hypocrite, but also because it’s the rational thing to do. As the New Economics Foundation has pointed out, the UK’s debt-to-GDP ratio is not high by historical and international standards, and with interest rates so low the cost of servicing the debt remains eminently manageable.

The most powerful riposte to handbag economics is quantitative easing. The cognitive dissonance between ‘the British government has run out of money’ and ‘the Bank of England has just created £37bb’ is so great that we tend to just stick with the handbag as the simplest model. But the parallel between economics and a household budget breaks down when you realise there’s a money-printing machine in the garden shed. The European Central Bank is about to conjure a trillion euros out of thin air. This elastic fiscal latitude is what makes Nick Ferrari’s question to Bennett – "500,000 homes, £2.7bn? What are they made of, plywood?" – so maddening: it’s false, yet irresistibly tangible.

There is a debate among economists about the extent to which money grows on trees in an economy like the UK, but we certainly have enough monetary freedom to conclude that Osborne’s crust-and-gruel economics is not only unnecessarily punitive, but also fiscally illiterate. The classic risk of QE is inflation, but that is at an all-time low. We were sold austerity on the grounds that we might otherwise become like Greece, but Greece’s problem is that its hands are tied by being in the Euro. The IMF has since admitted that austerity was a mistake in countries that have control over their currency. Positive Money is rightly arguing for money to be created by governments rather than by commercial banks, so it can be used for investment that actually benefits people, rather than flooding financial markets, pushing up asset prices and making the rich even richer, which is what has happened to all that QE. Adair Turner is advocating helicopter money – yes, literally dropping money out of a helicopter for people to spend, arguing that this would kick-start the economy and lead to growth. But God forbid that wealth might actually be more evenly distributed.

“Balancing the books” has little to do with economics, and everything to do with a political desire to cut public spending and shrink the state. But countering it is difficult, because its metaphors have such visual and moral clarity. In reality, macroeconomics is counterintuitive.

In 2011, Cameron had to hastily rewrite a speech stating that “the only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills” after economists pointed out that this would massively exacerbate a recession fuelled by lack of demand. But two years later the penny had still not dropped. “Labour say that by borrowing more they would miraculously end up borrowing less,” Cameron said in 2013. “Let me just say that again: they think borrowing more money would mean borrowing less. Yes, it really is as incredible as that.” What is really incredible is that either Cameron doesn’t understand the economics of investment, or he’s misleading the public.

“It is well enough,” Henry Ford once said, “that the people of the nation do not understand our banking and monetary system; for, if they did, I believe there would be a revolution before tomorrow morning.” Grasping how the economy actually works would open up a policy space that is entirely absent from current political “debate”.

Right now, if anyone suggests a progressive alternative to the austerity straightjacket they are dismissed as a naïve fantasist, but that is a reversal of the facts. This is not even about daring to dream. It’s about daring to be an economic realist.

Eliane Glaser is a senior lecturer at Bath Spa University and author of Get Real: How to See Through the Hype, Spin and Lies of Modern Life.

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You may call me a monster – but I'm glad that girl's lemonade stall got shut down

What's wrong with hard-working public servants enforcing perfectly sensible regulations?

Who could fail to be moved by the widely shared tears of a five year old whose innocent lemonade stall was brutally shut down by evil bureaucrats? What sort of monster would not have their heartstrings tugged by the plaintive “I've done a bad thing” from a girl whose father tells us she “just wanted to put a smile on people's faces”?

Well me, actually.

There are half a million cases of food poisoning each year in the UK, and one of the reasons we have stringent controls on who can sell food and drink, especially in unsealed containers, is to try to cut those figures down. And street stalls in general are regulated because we have a system of taxation, rights and responsibilities in this country which underpins our functioning society. Regulation is a social and economic good.

It’s also pretty unfair to criticise the hard-working public servants who acted in this case for doing the job they are no doubt underpaid to do. For the council to say “we expect our enforcement officers to show common sense” as they cancelled the fine is all very well, but I’m willing to bet they are given precious little leeway in their training when it comes to who gets fined and who doesn’t. If the council is handing out apologies, it likely should be issuing one to its officers as well.

“But these are decent folk being persecuted by a nanny state,” I hear you cry. And I stand impervious, I’m afraid. Because I’ve heard that line a lot recently and it’s beginning to grate.

It’s the same argument used against speed cameras and parking fines. How often have you heard those caught out proclaim themselves as “law-abiding citizens” and bemoan the infringement of their freedom? I have news for you: if you break the speed limit, or park illegally, or indeed break health and safety or trading regulations, you are not a law-abiding citizen. You’re actually the one who’s in the wrong.

And rarely is ignorance an excuse. Speed limits and parking regulations are posted clearly. In the case of the now famous lemonade stand, the father in question is even quoted as saying “I thought that they would just tell us to pack up and go home.” So he knew he was breaking the rules. He just didn’t think the consequences should apply to him.

A culture of entitlement, and a belief that rules are for other people but not us, is a disease gripping middle Britain. It is demonstrated in many different ways, from the driver telling the cyclist that she has no right to be on the road because she doesn’t pay road tax (I know), to the father holding up his daughter’s tears to get out of a fine.

I know, I’m a monster. But hooray for the enforcers, I say.

Duncan Hothersall is the editor of Labour Hame