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Austerity – who should pay for the financial crisis?

Written By: - Date published: 10:57 am, November 17th, 2019 - 30 comments
Categories: Austerity, capitalism, debt / deficit, economy, Economy, Financial markets, International, Jeremy Corbyn, Politics, poverty, uk politics - Tags: , , , , , , , ,

My previous post talked about the 2008 financial crisis and the long shadow it casts over politics and society still a decade later.

In the UK, the financial crisis was followed by a decade of austerity. These policies included significant cuts to public services, underfunding the NHS, tertiary fees being raised to the highest level of any country in Europe and wages being held down throughout the British economy. Earlier this year it was reported that policies of austerity had resulted in 130,000 preventable deaths in the UK.

The policies of austerity were introduced by the Conservative and Liberal Democrat Coalition Government of 2010 to 2015. It is worth remembering at this time that the opposition Labour Party led by Ed Miliband also accepted the Tory Lib Dem framework of austerity. Prior the Labour Party membership electing Jeremy Corbyn as Labour leader in 2015, many in the parliamentary Labour Party were prepared to support or at least abstain on the Tories Welfare bill which cut welfare payments.

The Political establishment after the financial crisis poured billions into bailing out banks like NatWest and Lloyds. Then spent the next decade cutting public spending. Comedian Alexei Sayle says austerity “was sold to the country on the basis that the global crash occurred because there were too many libraries in Wolverhampton.”  

After a financial crisis unpleasant and difficult decisions needed to be made. And these decisions were unlikely to be popular. Austerity was a political choice, as was bailing out the banks and allowing their executives to continue to pay themselves bonuses by ordinary people suffered. Many economists and academics have criticised austerity saying that it failed to result in an economic recovery. In the UK, austerity widened the already significant gulf between rich and poor. For the generation reaching adulthood after 2008, they now leave school facing precarious low paid work, crippling student debt and very low prospects of ever owning a home.

So what were the alternatives to austerity? In the 1930s President Franklin D. Roosevelt introduced the new deal, where the US government borrowed and invested in big public works schemes to stimulate the economy. By creating jobs that paid decent wages, more people were paying tax and were spending in the economy. A number of other countries followed a similar model after the 1930s depression. The response in the UK as well as much of Europe and North America of implementing austerity policies has resulted in greater poverty, crime and social problems. In the UK, while the overall economy may have recovered from the 2008 crash, many parts of the country remain badly deprived and in need of help. In Canary Wharf the bankers maybe doing ok now, but in Jaywick and Blackpool the recession never ended.

Map showing deprivation across England

After the election of Jeremy Corbyn as Labour leader in 2015, the Labour Party moved to a position of opposing austerity. In the 2017 general election the Labour Party, though not making it into government, had its biggest increase in vote in the party’s history. Austerity is not popular, and the British public have had enough.

In September Chancellor of the Exchequer Sajid Javid declared the end of austerity. A convenient thing to announce just before a general election. However the damage has been done. The Conservative Party pledge to increase police numbers by 20,000 belies the fact that police number have been cut by 21,000 since this government came to power. Also after a decade of under resourcing the police the UK has seen a significant rise in knife and other violent crime. The cost of these cuts to the police budget has been enormous, and increasing numbers now is needed but won’t repair the damage.

Even if the policies of austerity are now over, with increases to public spending being promised by all major parties in this election, the last decade of cuts has taken a huge toll. The policies of austerity have resulted in cuts to services, increased poverty and a massive growth in the divide in the gap between rich and poor.

Austerity was never inevitable. It was a political choice. A choice of whether those who caused the crisis should pay, or whether ordinary people should be made to suffer and pay for the mistakes of banks and financial institutions.

To support Momentum campaign for a Corbyn led Labour Government in the UK you can give your support here.

30 comments on “Austerity – who should pay for the financial crisis?”

  1. lprent 1

    Corrected the post so that the body of the post was actually in the body rather than in the excerpt. And the post body didn't just consist of the excerpt.

    Ummmm.. A bit more care please… 😈

    • weka 1.1

      Written a post in the excerpt box myself in the past and it took me ages to figure out why it wasn't showing up in the Preview. Always Preview 😉 Not the easiest interface from WP atm.

  2. NZJester 2

    The rich make-out gangbusters in both ways. They gamble big and sometimes win, but when they are meant to loose they instead push off the loss to the rest of their countrymen making them pay for their loss keeping themselves insulated from any risk.

  3. Nic the NZer 3

    This is the best, most well articulated post I have seen on this topic.

    One thing to note is by the time the austerity turn was inflicted the financial crisis was already resolved. The bank of england has implemented bailouts and RBS had been nationalised.

    So despite what the Tories wanted implied nobody had needed cuts to pay for the crisis. The austerity policy implemented however was quite bad for the economy and caused a later double dip recession in the UK.

    • Gosman 3.1

      Austerity was applied in the UK because the last Labour government started spending up big. By the time the Conservatives and Lib-Dems took over the budget deficit had grown alarmingly high. It was fixing this mess that has been labelled "austerity" by the left. The real culprits are Labour for getting the country in the mess in the first place not the Conservatives for trying to get the country out of it.

       

      • Nic the NZer 3.1.1

        You clearly have no idea here. Your argument doesn't even acknowledge the impact of the GFC on the UK economy.

        • Gosman 3.1.1.1

          The GFC had an impact on the UK economy but it was the spending commitments of the Brown Labour government that caused the massive blow out in the deficit.

           

          • Nic the NZer 3.1.1.1.1

            You guys should really coordinate better when ever you have a shift change on your account. Your colleague is arguing the reverse position just below when it applies to a favoured (National, Key) government. This kind of nonsense makes your pseudonym look like an incoherent partisan hack.

            • Gosman 3.1.1.1.1.1

              Paranoid much? I presume you are meaning my comments below. These positions are not inconsistent.

              • Nic the NZer

                There blatantly inconsistent.

                • Gosman

                  Nope they are not. UK Labour left the Conservative-LibDem coalition a massive fiscal hole which gave them no room for anything BUT Austerity (unless they wanted to turn the UK in to another Greece).

                  In NZ the Key government DID have more fiscal leg room (thanks in part by the fact the Clark-Cullen government didn't start splurging till the last year or so of their time in power). However as stated the fact Key's government used this fiscal space to increase debt was criticised by people on the left.

                  • Nic the NZer

                    "From people who save"

                    "unless they wanted to turn the UK in to another Greece"

                    Wow.

                    There is no substantive difference between a UK Labour spending and Key/National spending (except in the partisan hacks batshit crazy belief system). Both fiscal gaps were mostly driven by falls in tax collection steming from the recession which makes a mockery of your complaints about governments fiscal policy causing a deficit.

                    • Gosman

                      No. The Labour party one in NZ was a structural deficit caused by spending commitments.

                    • Nic the NZer []

                      You meant to say the UK Labour one was a structural deficit caused by spending commitments? Or are you strugging to pick up from the argument from previous shifts once again.

                    • Gosman

                      I mean the one that the National party in NZ inherited in 2008

                    • Nic the NZer []

                      Interesting. You realise your now undermining your assertion from yesterday that the UK needed to cut and NZ maintain its govt deficits, don't you?

                      Since you clearly don't understand the terminology allow me to explain. The structural deficit is the part of the govt deficit which will supposedly persist when the economy is operating at full capacity. Should that spending continue in an actual full capacity state then inflation is expected to increase. The rest of the deficit is called cyclical and can balance out a temporary fall in economic activity (e.g a recession). Even the IMF only argues that structural (and not cyclical) deficits should be cut (and that every deficit they ever considered is mostly structural). So by your argument the UK Tories austerity policy involved stupid cuts to a temporary measure to support the economy (and in NZ we didn't need the deficit to support our economy). Well the UK Tories did manage to cause a double dip recession (as predicted at the time) so that is clear evidence supporting your position (your position today, not from yesterday).

  4. mac1 4

    There is currently being played locally "Nell Gwynn" written by by Jessica Swale in abourt 2015 in which austerity gets a serve by Charles II of England when he strides to the front of the stage and declares "Down with Austerity". This was met with great cheers in England according to the reviews but NZers don't seem to get it.

    I woke up this morning with the sudden realisation that Oliver Cromwell who killed Charles' father,  Charles I, was responsible for a politcial movement called "Rexit"!

     

  5. Blazer 5

    'Austerity' is generally implemented to ensure interest on debt to bondholders has priority.

    The international banking cartel frowns on expanding money supply and running deficits.

    Can still hear Key..'the Greens want to print ..money'..as if it was some heinous crime.

    What he meant was ..if we do that and spend it into the economy ,we won't have to borrow all these billions off Wall St bankers ,who I won't name ,but are offering a great rate of…interest!

    • Pat 5.1

      the banking cartel only frowns on someone else expanding the money supply

    • Gosman 5.2

      Except Key's government was blamed by many on the left (including many here) for increasing the size of the government debt hugely.

      • Dukeofurl 5.2.1

        They tried to pretend otherwise… it was only those schumks  Clark and Cullen who paid down debt in good times and  prefunded  the Super scheme ( which English then used as collateral to borrow even more).

        next time it will be printing money and it wont hurt a bit

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