I blame Adam Smith

Really, its all Adam Smith’s fault. After all, the founder of modern economics was a Professor of Moral Philosophy and its similarly impossible to understand the dominant attitudes towards the current crisis other than in moral terms. Here’s some examples:

• The tosh about skivers vs strivers and associated notions of fairness? That’s a (supposedly) moral argument that is.

• The troika, well the German for the most part, approach to Greece? Is a moral stance; they made this mess with their spending and tax dodging, so now they have to pay the price for any aid they get so they do.

• No additional public spending today because it would be at the expense of tomorrow’s youth? Yup, that’s a largely moral stance that is.

• More generally, what I’ve personally encountered is the sense that because we had a credit fulled boom we deserve the current bust, because that’s only fair, isn’t it? Like we deserve it, really. And anyway, we need to repay the debt because you can’t go on borrowing forever.......

A big problem with such notions of morality is they’re so utterly half-arsed i.e. not thought thru. Rather, they typically operate as instincts or what adherents, if challenged, dress up as “common-sense”. Except, they’re not, they're more simply statements of ignorant prejudice.

Take skivers vs strivers; researchers have actively gone out hunting and failed to find almost any of the multi-generational unemployed households that get the Daily Mail so excited. In the meantime, the benefit cuts are clattering the incomes of the disabled and the working poor as well as the unemployed who are almost all actively seeking work.

Greece? Well, I don’t think destroying an economy via the terms attached to French and German funded bailouts that helped the French and German banks that had lent to Greece in the first place is teaching Greek people the lesson France and Germany thinks it is.

Spending more today would hurt the youth of tomorrow? If proponents of this argument were actually bothered about the youth or even the "yout" they should perhaps reflect upon the massive rise in long-term youth unemployment seen across Western Europe and the associated permanent damage this is doing to future, productive capacity (and individual lives).

As for us all somehow deserving the bust, well current UK monetary policy is geared to protecting the heavily indebted via super low interest rates whilst using quantitative easing to boost asset values. Guess what caused the credit crunch here  – no it wasn’t casino banking, it was the bursting of various cheap credit fuelled asset bubbles, which here primarily meant commercial property and company values, things yer average punter had absolutely nothing to do with.

Credit did serve a useful political purpose though in that it papered over the stagnation in average real wages seen in the run up to 2007 and the associated rise in economic inequality. I’m not sure why that’s something most people should feel especially guilty about though. Oh and the notion that a country can’t borrow forever or at least for a very long time is simply dumb.

The problem with morality is that its a big dogmatic-y i.e. engrained and purely reflexive in a lets not let dull stuff like facts get in the way. And its creating big problems. What are nasty prejudices masquerading as common-sense appear so deeply engrained, widespread and popular are having a huge influence on government policy. Right now, we really are shooting ourselves in both feet whilst blaming someone else - the disabled and the poor for the most part - for the pain.

Masochistic e.rection disguise

You know an economic policy has had its credibility chips when the more politicians try to justify it the more they sound like they’re describing a masochistic e.rection.

Hence, fiscal austerity is painful, but thankfully the ConDems are up to taking the kind of big, strong, firm and tough (and blue-veined) decisions we need if we’re to cum through these hard, oh so hard times together. Indeed.

The disguise part here stems from the reality, which is that for all any politician might claim we’re all in this together, the following are the people really feeling the pain - the working poor, the unemployed, the disabled and the infirm. That they are doing so due to policies that are actively undermining the growth they’re supposed to be promoting exacerbates this bloody awful reality.

What does S&P stand for?

Oh no, Standard and Poor’s (S&P) has revised its outlook on long-term UK government debt from “stable” to “negative”, meaning Britain is more likely to lose its “AAA” rating. Oh no!

Why (oh why) I wonder? Well, it’s because they think it more likely that “within the next two years … fiscal performance weakens beyond our current expectations. We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation.” Ahh, so “fiscal performance” means onsolidating government finances i.e. cutting the deficit. Ahhhh.

But, hang on a mo, isn’t there a tension between fiscal ”consolidation” i.e. cutting government spending/raising taxes and economic growth especially right now as per the following statement; “We continue to believe the government's efforts over the next few years to engineer the planned correction in the U.K.'s fiscal accounts will likely drag on economic growth”.

Ahhhh. So there is a tension, a proufound contradiction even especially when private sector demand is so weak, between fiscal consolidation and economic growth. I wonder who came out with that mad view? Err, that’d be S&P in the same note setting out why they’ve moved the UK to a negative outlook.

Except, further on S&P then say “We could lower the ratings if we conclude that the pace and extent of fiscal consolidation has slowed beyond what we currently expect. This could stem from a reappraisal of our view of the government's willingness and ability to implement its ambitious fiscal strategy.”. So at the same time as S&P is saying fiscal consolidation is a drag on economic growth they’re also saying they’d probably downgrade the UK if consolidation slowed down?

Oh. I guess you could go off on one here about double-think. Personally, it reads to me more like S&P are setting out their “analytical” prejudices (cut spending, cut spending) and reality, then failing to acknowledge let alone reconcile the two. This would be nice if it was a purely academic exercise, except its not. Or is it? 

Before some dicksplash shouts Greece, Greece like a Pink Lady gone wild, we’ve actually now got a meaningful example of what impact a UK downgrade would have; a month after France lost its “AAA”, French long-term borrowing costs “hit a record low at an auction”. So there you then, a one notch downgrade doesn’t matter diddly right now, which makes sense given there aren’t too many practical alternatives to British government debt i.e. there’s only so much “AAA” Finnish debt to go around.

This reality should be a marvellous and liberating thing for government policy. Now, not only can we get a real, counter-cyclical, debt funded government spending programme (social housing, social housing!) we could do so safe in the knowledge that S&P’s incoherent shite (plus whatever leaks out of Fitch’s and Moodys pants) can be safely ignored. 

We should, but as things currently stand we won’t cos S&P aren't the only people to have those same prejudices plus there's the major and therefore probably politically unpalatable u-turn doing so here would involve, Shame & a Pity really. Sad & Pathetic even. Shysters & Poobahs or is it Sock-Wranglers & Pie-chart-interferers? Nah, its Shite & its avoidable Pish.