The Political Economy

So, after a little hesitation, Labour voted against the fiscal charter. Well, when I say 'Labour', I mean 'all but twenty Labour MPs'. And those who heroically abstained did so, not because they thought the fiscal charter - committing British governments to obtain a a budget surplus by 2019 and maintain it subsequently unless GDP growth falls below 1% - is a good idea, but in order to have a pop at McDonnell and Corbyn.

It is, after all, manifestly obvious that the charter is not a good idea. In order to recognise this, you don't need to be a signed up adherent of any specific school of economic thought . In particular, you don't need to buy into the 'Keynesianism' attributed to McDonnell by some of his leftist critics, a doctrine whose relationship to anything Keynes actually said is decidedly minimal. No, to take this view, you just need to think that it's sometimes handy for governments to be able to borrow outside the terms dictated by the charter. You could think this for any number of reasons: deep or shallow, right or left. Thus, for example, the wide-eyed Trotskyists at The Economist. Or, for that matter, some character called George Osborne. To be honest, you don't even need this level of justification for rejecting the charter: the simple empirical observation that governments have borrowed far more freely than the charter allows without the sky caving in ought to suffice.

Now, George Osborne knows all of this. He does not, for one moment, think it is either possible or desirable for a government to abide by the terms of his charter. To understand why he brought it to the floor of parliament, we need to see that it is about politics, not economics. Or rather, it is about economics as politics. He knows that a section of voters think Labour is 'weak' on 'the economy'. Hence all the rhetoric about Corbyn being a 'threat to your family's economic security', and hence the charter, which is designed to mark out the Tories as the tough, responsible, party who can be trusted with 'the economy'. Quite why someone struggling to make ends meet should care much about some abstraction called 'the economy' may not be apparent, but this is where a powerful analogy kicks in.

Government accounts, for this analogy, are our household budget. And, as the less than feminist Margaret Thatcher put it,  'every housewife knows' you can't spend more than you earn. Even as an approach to personal budgets this is simplistic at best. It's an image born in a time before mass consumer credit and student loans, one of the insufficiently told stories about debt in advanced capitalist societies being the extent to which it has shifted from the public to the personal. But as a picture for government borrowing and spending it is grotesquely misleading. Still, it is powerful: not only simple, but comforting, it ties the abstract and economic to the homely and familiar, speaking of collective responsibility (being 'responsible' with 'our' finances) in a world that can seem both atomised and amoral. It is ideology in its pure, brilliant, form.

And the picture has captured hearts and minds. I've lost count of the number of conversations I have had where the household analogy has been flung back at me when I've opposed cuts or one sort or another. This audience member on Question Time is a good example of the phenomenon:


Varoufakis is obviously correct; his answer is quite literally a textbook one. But I doubt very much that the questioner was convinced, and I'm not too sure about viewers at home, beyond the echo chamber of the already-converted Left, who shared the video clip with gleeful abandon on every social media website known to humankind. The man is speaking common sense, which is one way of describing successful ideology. Varoufakis is speaking economics.

The function of the household analogy is not so much as to build up support for near-perpetual budget surpluses - I've said already that this is not Osborne's purpose - but to render a section of the population suspicious of public spending, and to thereby gain consent for the dismantling of collective provision, privatisation and welfare cuts.

The household analogy is not the only manner in which an image, picture, or cluster of ideas serves to reconcile people to economic attack in Cameron's Britain. Think of the what has been called the business ontology, the way so many of us view the world as one big interplay of consumers and individual entrepeneurs (rather than as, say, a site of conflict between workers and capital). The language of entrepeneurship is endemic: what might once have been thought of as terrifyingly insecure short term work might now be presented as an opportunity to advance one's CV in the cause of career entrepeneurship. Then consider all those television programmes inviting us to view our homes as investments (rather than, for example, shelters), and murmuring suggestively that we too might make big on the property market.

This stuff is long-standing and deep-seated. Unless and until the Left can establish some kind of counter-hegemony, a socialist common sense as well-entrenched as that visible in the wide grin of the Question Time inquisitor, until we can communicate clear and attractive accounts of the world to rival that of it as one big market place, we will not make progress. We can have all the correct arguments about the economy we like. We can explain how Osborne's policies are wrong, as indeed they are. We can even make the case that capitalism itself is a barrier to human flourishing, as indeed it is. But politics is about more than arguments, however much those of us who are most at home in the world of facts and figures might wish otherwise. It is about pictures, broad-brush ideas, hopes, fears, and dreams. As any housewife knows.

There's no inflation in a graveyard

Whilst everyone's been fretting about which privately-educated white person will succeed David Cameron as leader of the Tory party, a significant economic statistic was published. The Consumer Price Index  was 0% p.a.  in February, down 0.3% from January, raising the spectre of deflation, falling prices.

This is the first time on record that the CPI has been zero. George Osborne's response was upbeat:

Osborne said zero inflation was “a first for the British economy” and good news for family budgets.

Is he right? Well, suppose the downward trend continues - you'll be able to buy more stuff in British shops for the same amount of money. In this very minimal sense Osborne's clearly correct. It's also pretty clear that interest rates aren't going to take a hike any time soon. So credit where credit's due, there's two positives for every family budget*.

But whenever I hear a multi-millionaire talk about something being good for 'families', I ask myself 'which families?' Suppose your family isn't so rich that no member of it will ever need to work or claim benefits in order to maintain a non-destitute standard of living.   That is, suppose you are one of the vast majority of people in Britain.

You have good reason to be worried by the inflation statistics. First, employers are far less likely to make wage concessions if prices are falling: they have an excuse handed to them on a plate by the economy - "you are already better off on the same amount of pay". Deflation weakens the bargaining power of labour. Likewise, political pressure to increase benefit payments, already minimal, will be muted.

More alarmingly, deflation can wreak havoc on an economy in a way that threatens jobs themselves. If deflation settles in, people defer purchases, in the hope that prices will fall. Why should I buy that new TV this month, if I think that it's likely to be cheaper next month? Demand for goods and services falls, and so does output and employment. Similarly, firms defer capital investment, and those structural weaknesses of British capitalism, investment and productivity, will take a hit they can ill afford.

Now imagine you're in debt - like most people, and for that matter most corporations. If prices are falling, the purchasing power of a fixed amount of money increases. In particular, the real value of debt increases. Once again, hardly good news for most families.

The line amongst orthodox economic opinion about the possibility of development in this direction seems to be relaxed. The line is that low unemployment will put upward pressure on wages, and thus prevent persistent deflation setting in. The problem with this way of looking at things is that 'unemployment' isn't simply a number in an economic model, which correlates in a law-like fashion with the bargaining power of labour. Behind these abstractions lie real human beings, in real jobs, in real power relationships with their employers. And the nature of the jobs that have decreased unemployment in recent years does not look encouraging for wage settlements - they are insecure, often part-time, zero hour contracts proliferate. This is not a situation that lends itself to confident wage demands. Once a general lack of confidence, low unionisation, low levels of strikes and successful (from a trade union perspective) wage settlements is factored in, the picture looks bleak.

Or at least bleak for families unlike Osborne's.



*And for the budgets of people who don't happen to have families, who seem to have fallen out of the political picture of late.