Show of strength

Hugo Chávez says he wants to bring peace to the warring factions in Colombia's cocaine wars but his

Squinting into the glare of the late-afternoon Caribbean sun, hundreds of pleated khaki-dressed soldiers and military dignitaries form orderly rows facing their chief of staff and head of state, Venezuelan president Hugo Chávez.

Positioned on stage and flanked by a few lines of tanks and helicopters in a military training ground in the provincial city of Valencia, western Venezuela, President Chávez waits for the roaring fighter jets to pass overhead before addressing the assembly.

"From Colombia, Venezuela is threatened," Chávez says, dismissing as "inventions" widespread allegations that his government has colluded with drug trafficking and arms sales to Colombian guerrillas.

The speech is being delivered to mark the 16th anniversary of the attempted coup led by the then-young Lieutenant Colonel Chávez on 4 February 1992. Although it ended in failure and Chávez and his cohorts were imprisoned, many believe the event - now commonly referred to as 4F - paved the way for his eventual democratic election to the presidency in 1998.

But while the Venezuelan president was commemorating his failed putsch, over a million protesters took to the streets in neighbouring Colombia and in cities across the world to voice their opposition to Chávez's hostage-taking rebel allies, the Revolutionary Armed Forces of Colombia (Farc).

In an almost implausible coincidence, anti-Farc campaigners chose 4 February to mobilise a global protest against the Marxist insurgents. They maintain that the event was entirely apolitical and directed only at the rebel fighters, but in a statement on their website they denounce Chávez's "interventions in the internal matters of Colombia and, particularly, his declarations which seek to justify the Farc as a representation of the Colombian people".

Chávez's inflammatory comments about the threat from Colombia came two days after he declared that the Venezuelan armed forces were "on alert" against possible aggressions from the neighbouring country. In a televised broadcast, the president had warned: "We don't know how far it could go. We don't want to hurt anybody, but no one should make a mistake with us."

He added: "One day things will change in Colombia," referring to the cocaine-fuelled civil war that has raged across the border for almost 60 years. "Theirs is a war in which we cannot participate except as peacemakers."

His words have further aggravated the deepening diplomatic crisis with Bogotá. After successfully negotiating the release of two hostages held by the Farc, he requested that these narco-rebels be removed from lists of international terrorist organisations and expressed an ideological affinity with their insurgent cause.

"The Farc and [National Liberation Army] ELN are not terrorist bodies. They are real armies that occupy space in Colombia. That must be recognised. They are insurgent forces with a Bolivarian political project, which here we respect," Chávez said in his yearly address to the National Assembly on 11 January.

As the anti-Farc movement gathered global momentum through social networking sites such as Facebook, it was quickly seized upon by the Colombian government. On the day of protest, Colombian president Álvaro Uribe even delivered a message of thanks to marchers in the city of Valledupar. "Our gratitude goes to all Colombians who today expressed with dignity and strength their rejection of kidnapping and kidnappers," Reuters reported him as saying.

Back at the Valencia barracks, Venezuelan officials reacted truculently. Jesús González, the strat egic commander of the armed forces, rejected it as a "political ploy to try to identify 4 February with opposition to the Farc".

President Chávez reminded his army and onlookers of the history behind the day's cele brations. "The events of 4 February [1992] swept Venezuela into the 21st century. It was when the Bolivarian revolution truly began," he declared.

In recent years, the flamboyant Venezuelan president has used 4F to demonstrate his increasing regional influence and to launch stinging verbal attacks on his enemies.

While critics maintain that it is hypocritical for a democratic country to celebrate a coup, albeit a failed one, Chávez's supporters see it as the day that planted the seeds for Venezuela's ongoing socialist transformation. Chavistas call it the "Dawn of Hope" and regard it as a stepping-stone to true democracy for the poverty-stricken masses.

"It was the lightning bolt that illuminated the darkness," Chávez said in an interview with the Chilean author Marta Harnecker in 2005.

Continuing his speech to the military, the president maintains that 4F is not finished. "It reminds us we need to be even more revolutionary. My government is a child of 4F," he says.

After two years in prison, Chávez and his allies were released by presidential pardon in 1994 and began a new effort to take over the government, this time through democratic means.

"We realised that another military insurrection would have been crazy," Chávez said in 2005. "A large part of the population did not want violence, but rather they expected that we would organise a political movement structured to take the country on the right path." He came to believe, he has said, that the Bolivarian revolution had to be a peaceful one.

However, some scholars consider the Venez uelan government's decision to actively celebrate 4F a rewriting of history intended to indoctrinate the population.

Néstor Luis Luengo, a professor of sociology and head of research at the Andrés Bello Catholic University in south-west Caracas, believes commemorating the failed coup is a key element in Chávez's broader socialist agenda. "There is an ideological battle taking place in this country. If [the government is] going to push for more reforms, they have to change the ideology of the country and the historical events celebrated." It is in their interests, he says, to make 4 February a patriotic day.

Opposition leaders also criticise Chávez for using the commemoration of the failed coup as an attempt to politicise the military. "For us, the important thing is to have an armed force that is apolitical, modern and at the service of the Venezuelan people, and one that does not become a political party," said Julio Borges, leader of the opposition party Primero Justicia.

Other Chávez opponents are concerned at the militarism: "This government prefers to celebrate a day of violence. They should instead be celebrating the day he was democratically elected president," said Armando Briquet, secretary general of Primero Justicia.

A violent act

Chávez's supporters obviously disagree. Cruz Elena Peligrón, a civilian participant in the 1992 coup and friend and neighbour of Chávez in the 1990s, says: "We have always celebrated our independence day and that was a violent act. The US military commemorates wars like Vietnam and the Second World War. They say you have to fight for peace and unfortunately that's true."

Since Chávez took office in 1999, he has survived an attempted coup, oil strikes and referendums on his presidency. Last December, a package of proposed reforms to the constitution, which would have allowed him to stand for indefinite re-election, was defeated at the polls - his first political loss in nine years.

With Chávez's opponents invigorated by their poll success, this year's 4F festivities were notably restrained, taking place in a small pro vincial barracks instead of the grand military base at Fuerte Tiuna.

Venezuela's ambassador to the UN and former coup plotter, Francisco Javier Arias Cárdenas, said political priorities have changed: "We are no longer going to support unconditionally any segment of the Colombian military that has the objective of destroying either the Farc or the peace process in Colombia. Venezuela is just a third party in the civil war."

He concluded: "Of course we don't support guerrilla warfare, kidnapping or drug trafficking. But to end the war you don't necessarily need to end the Farc - just end the poverty, misery and violence that occur in Colombia every day. Both sides should go to the table and talk peace."

President Uribe maintains an unwavering zero-tolerance stance against the Marxist rebels and has shown much support for paramilitary forces that have been responsible for a catalogue of human rights abuses throughout Colombia's intractable civil war.

Meanwhile, Chávez's flamboyant militarism and allegiances with the Farc make dialogue between Colombia's warring factions seem less and less likely.

This article first appeared in the 11 February 2008 issue of the New Statesman, Now it gets really dirty

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.

***

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.

***

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