MoneyWeek and their "End of Britain" fearmongering campaign

n January 2013 I was pointed in the direction of an astonishing article which took pride of place on the website of the economics magazine MoneyWeek entitled “The end of Britain”. The article is a huge read, totaling over 10,000 words (including the constant appeals to subscribe to the magazine with which it is festooned). I certainly don’t have the time to critique the whole damn thing so I’ll just stick to some of the most fallacious and misleading elements.

Firstly I’ll note that I actually agree with the basic premise that the UK economy as a whole is in far too much debt (public, personal and financial sector) and that things are almost certain to get significantly worse before they get better. Having said that, the article is remarkably bad given that in the opening salvo they claim that they’ve “spent a significant amount of time and money in the past few months preparing this letter”. If this kind of revisionist doom-mongering rant is the best they can come up with after an investment of “significant time and money”, it doesn’t reflect at all well on their abilities or their publishing standards.

During the opening argument the letter alludes to “an unsolvable problem at the heart of our financial system. One that dates back over a hundred years”. After wading through acres of text it becomes clear that this “problem” they are referring to is “state spending”. The premise is a particularly doom-laden reworking of the Great Neoliberal Lie; that the 2007-08 global financial crisis and the resulting credit crunch were caused by excessive state spending, rather than the altogether more plausible theory that the current economic chaos came about because of reckless gambling and outright corruption in the financial markets, enabled by wave after wave of ideologically driven deregulations since 1979.

The article utilises one particular trick over and again, it contains graph after graph showing alarming growth spikes in the UK national debt, however these graphs are produced by counting the debt in £billions, rather than by the established practice of counting debt as a % of GDP (which is done in order to provide a sense of perspective). Of course there were more £billions in public debt in 1998 than there were in 1948 because there is such a thing as inflation, which makes a 1948 £billion an absolutely enormous sum (in terms of purchasing power) compared to a 1998 £billion.

Failing to adjust for inflation or relate the numbers to the actual size of the economy in order to create scary graphics is a very dodgy technique indeed. Take a look at the two graphs to the left. Theirs (above) measures the debt in £billions, mine (below) measures the debt as a % of GDP, notice the difference.

The difference is all important and is something that they are absolutely desperate to conceal from the reader, using deceptive graphics and outright omission to hide it. The thing they are trying to eradicate from history is a period of sustained economic growth and massive debt repayment that occurred between 1948 and 1979 (the green area on my graph) which became known as “The Golden Age of Capitalism”. The reason they work so hard to conceal it, is that it blasts a massive irreparable whole in the central narrative of their article; the fallacious argument that state spending, especially welfare, is essentially evil.

What they work so hard to conceal is that this period of sustained economic growth and the most comprehensive national debt reduction in UK history occurred during the period that the UK state introduced and expanded funding for countless welfare programmes (the NHS, improved pensions, maternity pay, disability benefits, public education, unemployment benefits…) and took many vital strategic industries under state control. If state spending is so evil, and creates so much debt, how on earth did the most ambitious rise in state spending in British history coincide with the biggest national debt reduction in British history? During the post-war consensus mixed economy period the UK national debt declined from 237% in 1948 all the way down to just 43% of GDP in 1979 when the post-war consensus was torn up by a bunch of ideologically driven neoliberals led by Margaret Thatcher.

Another equally interesting question that they clearly don’t want the reader to ask, is why the national debt has soared back up again after 33 continuous years of neoliberalism based economic policy? They don’t provide the necessary information for the reader to ask these questions because the answer is one that they don’t want their reader to even consider; that their beloved free-market ideology goes hand-in-hand with massive and unsustainable debt accumulation in the public and the private sector.

The next point to make is that they use some very dodgy techniques and comparisons to hype up the size of the UK debt above 900% of GDP, by including all future pension liabilities and the like, then they compare this 900% figure to numbers from other economies that don’t include these future liabilities. I’m not saying there isn’t a debt problem, there is certainly a huge one, but the misleading use of statistics to make the UK debt situation seem analogous to the historic situation in Wiemar Germany or worse than the current situation in Greece is a classic example of right-wing debt fearmongering. I’m not a great big fan of the former Bank of England economist David Blanchflower, but he is certainly right about one thing, this kind of fearmongering has the potential to badly undermine market confidence, especially if it is endlessly repeated by the government and the right-wing press. If millions of people (and investors) are led to believe that the UK is on the verge of financial armageddon, why on earth would they spend or invest their cash in the speculative manner that is necessary in order to create capitalist growth?

Here’s another thing to consider about MoneyWeek’s wildly inflated 900% debt figure and associated claims that it is impossible to escape from such a debt burden. The thing to consider is Iceland.

In 2002 Iceland privatised and deregulated their major banks, after just five years of reckless speculation and outright corruption, the Icelandic banks collapsed into insolvency, leaving behind debts that added up to 1,000% of Iceland’s GDP! Add onto that borrowing by the Icelandic government, personal debts such as mortgages and credit cards, any unfunded future liabilities and we have a figure far in excess of MoneyWeek’s scary 900% claims. The Icelandic economy is actually doing pretty well right now, with higher growth, lower borrowing and higher levels of employment than the Eurozone, the UK or the US. Given that they were in what MoneyWeek would call an “insolvable debt crisis” just half a decade ago, how can that be?

The answer is that when the Icelandic politicians attempted to subsume these staggering private sector debts into the national debt, a move that would have condemned the Icelandic population to poverty and debt repayment for generations, the Icelandic people revolted, threw out their government and replaced them with a new government that would disown the debts and begin hunting down the bankers that created them in order to bring them to justice.

Iceland disowned the enormous debts of their private banks and started bringing those responsible for creating them, to justice. Their economy is recovering strongly and their national debt is now actually beginning to fall.

The UK subsumed the enormous debts of their private banks and have diligently avoided bringing those responsible for creating them to justice. Their economy is stagnating and their national debt is now soaring out of control.

MoneyWeek don’t want the reader to think about Iceland, because what Iceland did sends shivers down their spines. Instead of bailing out the banks with taxpayers’ cash and allowing the bankers that created the debts to keep their jobs, Iceland disowned the debts and and began hunting down the bankers and economists that created the crisis in order to bring them to justice. Nothing drives fear into the heart of right-wing banker and economic wonks than the ideas of financial sector workers being brought to justice and governments disowning unpayable debts that don’t even belong to them.

Here’s another thing. MoneyWeek’s grotesque misuse of the word “fact” in this quote: “The fact is, when you look at our finances as a whole, the Coalition isn’t cutting anything.” Anyone that has been paying the slightest bit of attention over the last three years knows that the coalition have been cutting and cutting and cutting. They’ve cut £20 billion from the NHS budget (despite pre-election promises to “cut the deficit, not the NHS”) they’ve cut over 10,000 frontline police, they’ve shut down 34 Remploy factories and plan to lay off 875 people at the remaining 18, they’ve slashed defence spending and laid off 9,500 British military personnel, they’ve emaciated capital spending (infrastructure investment) causing immeasurable economic damage, they’ve ruthlessly slashed benefits several times, they’ve even slashed £860 million from the UK flood defence budget, resulting in the extensive flooding of several towns that had had their flood defence schemes cancelled during the numerous bouts of high rainfall in 2012..

Pretending that because the cuts have proved counterproductive and have failed to cut the deficit actually means that there simply haven’t been any cuts at all is a grotesque and economically illiterate distortion, which ignores the altogether more plausible theory is that the sheer scale of the cuts have led to economic contraction, which consequentially reduced government revenue, which then more than wiped out any savings made through the cuts.

Given that the cuts are absolutely undeniable, it should be clear that they the Tory led coalition government have been creating false economies. Cutting £1 at the cost of £2 or more, a bit further down the line. A classic example of this type of Tory false economy can be seen in the slashing of £860 million from the flood defence budget. The experts claim that for every £1 spent on erecting or maintaining flood defences, the economy saves £8 in avoided economic damage. Thus cuts to save less than £1 billion now, could end up costing £7.88 billion further down the line!

The problem with the Tory ideological austerity agenda is that George Osborne and his economic wonks at the OBR have been working under the assumption that all state spending, no matter what type, department or geographical location is essentially 50% waste. Thus across the board cuts make sense to them.

Of course the problem with this approach is that state spending is nowhere near uniform, some of it is terribly wasteful, but other areas create very strong economic returns. Thus if you engage in across-the-board austerity, you are likely to wipe out much that is actually beneficial, chucking the baby out with the bathwater so to speak. I’m not speculating about this issue, I’m telling you how it is. The notoriously right-wing IMF have even admitted that returns on government investment are significantly higher than the 50% figure the Tories have been using, and that in the current economic climate the normal range is now between 90% and 170%.

In fact George Osborne’s brainchild publicly funded economic thinktank the OBR (the ones that do all of Gideon’s spectacularly inaccurate calculations) accidentally admitted that in order for Osborne’s ideologically driven austerity experiment to be entirely responsible for the economic stagnation and the spiralling public debt, returns on investment would have to be 130%, a figure that happens to be slap-bang in the middle of the IMF range!

The fact that the economy is flatlining and the debt is continuing to soar is not proof of MoneyWeek’s couterfactual assertion that the coalition government are not cutting anything, it is proof of the old saying that “you can’t cut your way to growth”.

One of the most chillingly misleading sections is a spectacularly revisionist interpretation of the Argentine economic collapse of 1999-2002. MoneyWeek creates the scenario that the Argentine economy collapsed because they were borrowing too much, in order to blast it on welfare during the 1990s. What they fail to tell the reader is that during the 1990s Argentina was hailed as the “golden child” of the neoliberal movement, because at the behest of the IMF they rushed to slash state spending, especially on welfare, to privatise almost everything, to recklessly deregulate their financial sector and to cut taxes for corporations and the rich, whilst increasing regressive taxation on the poor.

Another thing MoneyWeek utterly fail to mention is that Argentina pegged their currency to the US dollar and removed capital controls, meaning that they were essentially stuck in the same situation as Spain, Greece, Italy, Ireland and Portugal find themselves in now: They abandoned control over the value of their own currency (their monetary autonomy) and abandoned control over how much of that currency could flow in and out of the country. These are the real factors that caused the Argentine economic meltdown.

What is even more revisionist than creating the fiction that excessive welfare spending caused the Argentine crash, is the claim that since the crash ended in 2002 “Argentina has barely recovered”. Between 2002 and 2011 the Argentine economy has grown by 91.3%, this is despite being locked out of the international money markets and despite the fact that most of the rest of the world struggled with a global financial sector meltdown in 2007-08. To put this 91.3% figure into perspective, the entire global economy only grew by 40.6% in the same period (2002-2011) and the UK economy grew by just 11.8%.

If a 91.3% growth in GDP, more than double the global rate, is considered “barely recovered”, how on earth should they be descibing the UK economy after the 2007-2008 economic crash, since when the UK economy has actually shrunk by 3.1%.

For further perspective. In the four year period after the Argentine economic crash, their economy grew by an average of 8.675% per year as compared to the global trend of 4.4% growth. In the four years after the UK financial crash the UK economy shrank by 3.1%, against a global trend of 2.85% growth. If after their neoliberal economic crash, Argentina managed to achieve growth a 4.3% above the global trend over a four year period and after the UK suffered their neoliberal economic crash, the growth rate fell 6% below the global trend over a 4 year period, we are left with a question that MoneyWeek would never, ever, dream of asking: What did Argentina and the UK do differently?

The Argentine government defaulted on the un-payable debts built up by vile and hopelessly corrupt predecessor regimes, the UK subsumed the un-payable debts of the UK financial sector into the public debt by gifting vast bailouts (over £1 trillion, more than 90% of UK GDP) to the reckless bankers that caused the crisis.

Argentina clamped down on tax-dodging in order to try to prevent capital flight, the UK have been actively opening up even more tax-loopholes, allowing ever greater sums to flow out of the UK economy into tax havens and refusing to prosecute industrial scale tax-dodging (which is understandable given that London is the global capital of the corporate tax avoidance sector).

Argentina invested heavily in infrastructure projects, jobs, education, house building and welfare (stimulus), the coalition government have ruthlessly slashed spending on all of these things (austerity).

Argentina tore up the right wing neoliberal textbook that drove them into crisis and began re-nationalising vital industries, the UK have stuck firmly with the tenets of neoliberal pseudo-economic orthodoxy, selling off or simply giving away vital sectors of the public sector (public health, the education system, police services, local government services, even more of the military…).

Virtually the only thing the two nations did the same was to devalue their currency. Argentina broke their peg to the US Dollar, but at a time where only a few countries like Japan were actively suppressing the value of their own currency via quantitative easing. The UK have been attempting to devalue the pound in a completely different economic atmosphere of consolidated depreciation, rendering the results negligible as the major central banks of the world all try the same quantitative easing currency suppression trick simultaneously.

MoneyWeek doesn’t want the reader to think about any of these themes, because it utterly destroys the central narrative of their letter (that state investment is evil), so they simply revise history to omit it all entirely. They want the reader to believe that Argentina got into trouble for excessive “socialist spending” when they absolutely didn’t (the right-wing economic drivel that MW are so fond of was the actual cause) and they want the reader to believe that Argentina never recovered from this crisis, which they absolutely did!

http://anotherangryvoice.blogspot.co.uk/…itain.html

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