The grim reality in Gaza

Mohammed Omer reports on shortages in Gaza from crucial medical supplies through children's winter c

Traffic in the Gaza Strip slowed to a trickle last week, and this week medical centres have scaled back treatment in the medicines and sustenance-destitute Strip.

"Israel’s decision is a death penalty: our reserve of fuel is almost zero and it may very likely run out by the end of today," said Khaled Radi, Ministry of Health spokesman for the dismissed Hamas government.

Radi spoke in reference to the 30 November Israeli Supreme Court decision to allow further fuel cutbacks, severe reductions which are crippling Gaza’s residents in all aspects of life. Prior to that ruling, as early as October Israel decided to begin limiting fuel, with Gaza soon after enduring serious cuts of over 50% of fuel needs, a dire statistic confirmed by the UN body OCHA.

At the Nahal Oz crossing, through which all fuel enters Gaza, the Palestinian petrol authority reported that Israel has delivered around only 190,000 litres of diesel a day since late October, falling short of the 350,000 litres needed by the Gaza Strip. This number plummeted on 29 November, with Israel delivering a scanty 60,000 litres, only marginally improving three days later, 2 December, with a delivery of 90,000 litres.

This week’s increased cutbacks resulted in a several day closure of Gaza’s petrol stations, owners striking in protest to the pittance of fuel allowed in–just one quarter of that normally received.

Gaza’s Association for Fuel Station Owners commented: "Petrol firms considered the amount negligible and so, in protest over the Israeli blockade, refused to accept the paltry offering which does not come close to meeting the essential needs of Gaza’s civilians."

A Gaza taxi driver related his concern: "Cutting off fuel means cutting off our lives. We use it for everything, in the place of wood or coal. It’s tragic not only that Israel is imposing this siege on Gaza, but also that some Palestinians are supporting this cruel embargo, with the naïve idea of causing the people turn against Hamas in Gaza."

Shortages of fuel have greatly affected the public transportation system, leaving students from universities in Gaza City delayed for hours standing in wait for transportation back to Khan Younies and Rafah in the south.

Trickle Effect

The fuel cuts in turn impede water access: with diesel-run pumps unable to function, leaving over 77,000 without fresh drinking water, according to Gaza’s water utility. Oxfam International has warned that soon 225,000 Gazans could suffer from inadequate water supplies, raising concerns for public health.

Ambulances and clinics suffer too, a fact reiterated by Khaled Radi, who related how fuel shortages have already brought some ambulances to a standstill: "This has affected the mobility of ambulances which are especially vital during on-going Israeli air strikes such as that of this morning."

He added that shortages further threatened to close essential clinics, which rely on back-up generators during the frequent electricity shortages in the Strip. Two first aid health centres have already been forced to suspend treatment during electricity cuts. Those that remain open suffer from want of medical supplies, with 91 of 416 essential medicines depleted, according to the WHO.

Even basic things are scarce. Residents are hard-pressed to find a piece of glass to repair a broken window, imperative in December’s cold weather, particularly in a time when electricity and gas are scarce-to-absent.

Eyad Yousef, a 31-year-old Palestinian teacher, has been waiting for cement, unavailable for the last many months, to enter Gaza. Concurrently, prices of building materials have skyrocketed, more than tripled in the worst cases. Yousef waits for any sort of building material, but he knows that will not find anything, as he has looked all over the picked-clean area. "I have a floor of my home to finish, but can’t do so yet as no sort of building materials are available in Gaza," he said. "I'm using pieces of nylon to cover my windows at home, but I can’t go on like this for long," he added, saying he hopes that the international community will put pressure on Israel to open borders and let vital products into Gaza.

Death Penalty

Yousef, at least, is luckier than the newly dead: since last month at least 31 medical patients have died in Gaza, a result of Israel’s lockdown on borders and preventing of medical access to Israeli, Egyptian and Jordanian hospitals, as well as West Bank hospitals.

Since Hamas took over power in June, this subsequent Israeli lockdown has made it virtually impossible for Palestinians to get out of Gaza. The situation then deteriorated with the closing of Karni crossing, Gaza’s only commercial crossing, only opened for the most basic food essentials. Coupled with Israel’s ground and air attacks, the situation for Palestinians worsened yet further still when Israel last October announced Gaza as a "hostile entity", further allowing Israel to justify its closed-borders policy to the international arena.

In the densely-populated region starved of medical supplies, and now facing the shutdown of clinics, Gazan citizens have been given a death sentence with Israel’s control over borders. Yahya Al Jamal 53, one case among hundreds of people, has cancer and is in serious need of medical care at well-equipped hospitals. For more than two months now he has been refused entry to Israel for treatment. His agonized father reported that his son will die in the coming days if he does not get the medication he needs, an outcome of Israel’s mass denial of the luxury of critical healthcare.

Insult upon injuries, cement – already scarce for building – is no longer available even for graves of the many recently dead.

Empty Stocks

Aid agencies like the World Food Program (WFP) reporting that food imports are only enough to meet 41 per cent of demand in the Gaza Strip.

As winter progresses, resilient citizens desperately seek to survive. In Rafah’s Saturday market, Umm Mohammed Zourub scours the stalls yet again: "I've been looking for new winter clothes for my children, but I haven't been able to find any because no materials are coming into Gaza with the closed borders," the 43 year old mother lamented.

Indeed, the cold weather has fallen quickly on an internationally-isolated and starved population. From the intense heat of summer months, where water was scarce and air conditioning a fantasy, Gazans now experience the bitter cold in the same homes unprepared for extremes, and the bitter realization that, once again, they have been left to the whims of imprisonment, Israeli air and ground attacks, and a staggering invisibility in the international realm.

Mohammed Omer
MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

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The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt