7 - The Folly of Austerity Politics

Summary

“Our Congress passes laws that subsidize corporations, farms, oil companies, airlines, and houses for suburbia, but when they turn their attention to the poor they suddenly become concerned with balancing the budget.”

Coretta Scott King

“Cuts have almost certainly halted a rise in life expectancy. Our social order is bankrupt. We don’t just need a new government, we need a new way to organize society.”

Owen Jones

There was a brief Keynesian moment in the immediate aftermath of the 2008 financial crisis, a moment in which the excesses of neoliberalism were so clear, and the adverse consequences of deregulated financial institutions so obvious, that the whole Reagan/Thatcher enthusiasm for free-market capitalism suddenly lost popular support and its political advocates lost electoral credibility. But sadly, it was just a moment – one quickly over-shadowed by the resurgence of self-confidence on the centre-right, and the return to serious austerity politics on both sides of the Atlantic. Since the cutting of public spending in the depths of a recession served only to prolong the recession itself, the return to the economics of neoliberalism only intensified the weaknesses that had generated the crisis in the first place – and in doing so, opened a gap between economic performance and appropriate public policy that thus far the centre-left has failed to close. How that closure might yet occur is the subject matter of the final chapter in this volume. The aim here is simply to demonstrate how real the need for that closure remains.

The Keynesian moment

In the US and the UK, as elsewhere across the advanced capitalist world (and that included China), the first response to the 2008 crash was a reversion to straightforward Keynesianism. Governments spent money, and used quantitative easing, to re-establish credit flows and lessen the recessionary impact of the credit squeeze of September 2008. For some governments, like the New Labour one in London, that response involved no sharp rupture with previous policy; but for others, most notably the Republican one in Washington, DC, it most decidedly did. For the first response of the Bush Administration to the growing evidence of instability in US-based financial institutions in 2007 and early 2008 had been adamantly to insist on the continuation of business as normal.