The Austerity Games

by Mitch Feierstein about 11 years 6 months ago

Teen hit The Hunger Games tells of a world where starving children in a post-apocalyptic world are forced to battle each other to the death, for the entertainment of a small coterie of the wealthy and powerful.

The book is by Suzanne Collins, who published her novel one day before Lehman Brothers collapsed: the moment that inaugurated the collapse of a fragile and bloated financial system. Since that day, a tiny coterie of the wealthy and powerful – notably the barons of the international financial system – seem to have done remarkably well for themselves, while ordinary citizens have suffered job losses, wage freezes, high inflation, perennial financial scares, and the destruction of value in their savings and pension funds. We aren’t yet battling each other to death in exchange for food, but give it time. We’re not even four years on.

Naturally, policy makers want us to believe that everything’s going to be OK. George Osborne’s tough talk about borrowing our way into crisis and earning our way out is intended to be Churchillian. This is going to betough, but with enough blood, tears, toil and sweat (he means yours, of course; no one’s expecting bankers to chip in), we’ll get through it.

Unfortunately, economies don’t respond well to stirring words. They respond to facts. And, as I’ve long predicted, and as the OECD’s latest data also suggest, the British economy is back in recession. We’re not earning our way out of anything. The economy is shrinking. Our debt is growing. The problem’s not smaller than it was; it’s bigger and getting worse.

That bad news isn’t restricted to the real economy. Mortgage approvals for house purchases have dropped sharply and are expected to fall yet further. Such falls will drive house prices down from their current (unsustainable) levels and will put further pressure on bank’s balance sheets and household confidence. And given that bank lending is already falling short of unambitious targets, the news is hardly better for a struggling corporate sector.

Bank of England figures have fueled predictions of further property price falls

This fundamental frailty comes in part from our own head-splitting debt hangover, but it comes also from Europe. Italy’s hopes of paying back its massive debts rest partly on swingeing austerity, but mostly on finding some path back to economic growth – a path it hasn’t been on for a decade and more. Alas, the OECD reckons that the Italian economy is contracting, not growing, which means its debt burden is increasing.

Anxiety over the Euro remains so acute that even government advisers – Steve Nickell of the Office for Budget Responsibility – admits to MPs that he checks William Hill for the odds of a euro collapse. (You can get odds here, if you’re worried.)

The authorities’ response to these things has been part-good, part-feeble. The good part is that we have a government which understands that debt is not a good thing, that money has to be repaid, that borrowing from the future to fund consumption in the present is an idiot’s game. An idiot’s game with a horrible ending.

Box office hit: Jennifer Lawrence as Katniss and Liam Hemsworth as Gale in a scene from the Hunger Games

The bad part is that the Bank of England still loves debt. Inflation is high? Hey, who cares, let’s print some more money. Let’s monetise our debt and try to to inflate it away instead of properly addressing and properly restructuring it.

Dilma Rousseff, the Brazilian president, talks about the world being swamped by a ‘monetary tsunami’. She’s right. And that tsunami is like an addiction to borrowing: you get the nice bits upfront (low interestrates, some impact on growth); you get the bad parts later (inflation, inflation, inflation.) You want to know why the price of gold is so high? It’s because professional investors are watching the progress of that tsunami. It’s still offshore, but it’s heading towards us and getting bigger all the time.

And meantime, where is the recovery going to come from? George Osborne does seem to understand, intellectually, that recovery will come from jobs growth from small and medium businesses. (The big firms will create jobs too, but they’ll also be cutting them, so the net effect is not reliably positive.) Yet that intellectual understanding isn’t matched by radicalism of action. The tax and regulatory burden facing small firms wanting to grow islike a massive weight that has to be rolled uphill before the firm can even think about generating sales and hiring new staff. And why, for example, is there not a huge effort to slash payroll taxes? If we want more jobs, why in God’s name are we taxing them?

Collins’ book, The Hunger Games, was the first of a trilogy. Which seems optimistic to me. A trilogy of misery – I’d take that like a shot. But I don’t think we’re in a trilogy. I think it’s a soap opera and we’ve only just introduced the characters. The OECD has just welcomed you to the double-dip recession. Next up: the triple-dip. You heard it here first.


This blog was published in todays Daily Mail