Wednesday, 27 October 2010

Good news travels fast. But it doesn't always take up residence.

According to the latest news reports, Thatcherism isn’t dead. It’s propped up somewhere in a London hospital bed, while a crash team – consisting of Messrs Cameron, Osborne, Clegg and Cable – is desperately trying to revive the patient. Glancing at the medical records, we can see an admission date of 1990, coinciding with what was presumed to be a fatal injury in the poll tax riots. Comatose for two decades, the zombie is about to get up and walk again. Call Robin Williams and Robert De Niro.

Ok, maybe I’m a little cynical, but it does seem to me that we’re on the brink of another right-wing ideological experiment and the deficit problem is just handy cover for the dismantling of the welfare state.

Back at the end of the 1970s, George Bush Senior famously accused Ronald Reagan of pursuing ‘voodoo’ economics. There’s a fair bit of hooey about the current ConDem administration too. They have a near mystical belief in the ability of the private sector to generate jobs to replace those that will soon be lost in the public-sector cuts programme. Buoyed by impressive growth figures in the last two quarters, they argue that the economy can soak up the carnage that’s about to be unleashed. I wouldn’t be so sure.

In order to replace the number of jobs that will be lost in the public sector and the associated private-sector jobs dependent on government finance, we’d need to be creating employment opportunities faster than they were created in the last boom. After yesterday’s GDP numbers, the Coalition cheerleaders might feel they have a credible case. The equivalent of 2% growth over a half-year period is staggeringly good given the position the UK economy was recently in. But look a little closer. There is a mini construction boom in progress, which is artificially inflating the figures. As The Guardian’s economic correspondent Philip Inman has pointed out, this seems a tad odd. We know there aren’t any houses being built and there’s not a lot of commercial work either. So what exactly are these builders doing? It turns out, they’re working on big infrastructure projects that were signed off at the tail end of the last government or rushed through since the election in advance of the looming cuts.

So how big a cushion do we really have ahead of the cuts? It’s very difficult to say. We should be in no doubt, however, that the effect of attacking the public sector will be detrimental to the economy as a whole. Private sector businesses don’t create wealth and employment out of thin air. They rely on customers having money to spend and the confidence to spend it.

I saw an interesting report on the BBC yesterday about a commercial linen cleaner – in London, I think – which had recently been forced to put its workers on shorter hours. The reason? Business from restaurants, which send their table cloths and napkins to be laundered, was down 10%. The threat of austerity was causing diners to tighten their belts.

The laundry workers, who’ve seen their hours reduced, will have less money to spend and will perhaps decide to cut their shopping bills in the supermarket and give up on that dream of a cheap holiday next summer. That’s what the economy is like. Interconnected, with complex feedback loops. Who knows? Maybe these same workers treat themselves to a meal out every few months? And perhaps now they’ll decide to stay at home instead. So that’s one less tablecloth to clean.

My hunch is that people like Clegg and Cable must realise what a huge gamble is currently being played out. The Deputy Prime Minister said on Desert Island Discs recently that he had been searching his conscience. I’m not sure this is a search that would necessarily require sniffer dogs and helicopters. He is an opportunist of the first order, who has sold out every principle he might have had for the chance to serve at a senior level in government.

The Business Secretary, meanwhile, makes dramatic speeches attacking the excesses of capitalism while serving in a government which is about to exacerbate them. He has signed up to the Pig Society, where bankers happily collect their gargantuan bonuses once again, while poor people in inner London are shipped off to Hastings because they can no longer afford to pay their rent. In his late 60s now, Cable probably recognises this as his last opportunity to take on a frontline political role. In many ways though, he cuts the most pathetic figure. To see a man with such a good brain supporting the economic and social programme of Cameron and Osborne is frankly embarrassing. In the world of the Coalition though, black is white and white is black. Oceania has always been at war with Eurasia.

Predictions, then. Reasonably strong economic growth providing a little bit of a cushion for the ConDems in the short term. Storm clouds gathering fast. The economy to tank during 2011 as unemployment starts to rise, the VAT increase takes effect, consumers stop spending and house prices slide again. Greater numbers of benefit claimants on the books and reduced tax revenues will make it increasingly difficult for Osborne to meet his own deficit reduction targets.

If it does turn out this way, Ed Miliband will be under a lot of pressure to demonstrate that he can plot an alternative route for the UK. Let's hope he's up to the challenge.

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