By Simon Jenkins
Inflation is falling, debt is rising, growth is static and credit is edgy. All these are facts. There must be an economic equation that says what to do next.
So where are the economists when we need them? As usual they have taken to the hills.
The global recession is looking more and more like an economic world war. Conflicts erupt from a cloudless sky, Germany against Greece, Britain against Europe, the west against China, America against itself.
Financial armies move across the face of the earth, credit rating agencies plotting their path. They bring destruction everywhere. Commanders gaze bemused at the carnage and try one failed strategy after another.
Nothing sensible happens, no lesson is learned, as the grim logic of war takes hold. As in any war, conflict is coalescing along a central front, between austerity and growth. Can the demon debt be conquered and driven back into the hole from whence it came?
In Greece the answer is simple. The economy is bankrupt. Faced with a government dancing to the tune of its creditors, the people riot. I used to think I would be an Athens rioter because it scared German and French bankers into renewing their loans and paying my wages. Now I would riot to wreck the euro and secure default. It would be chaos, but at least the wound could heal and life start again. At the moment all is hell.
The failure to let Greece restructure its collapsed economy is the final arrogance of Europe’s postwar elite, believing it could enforce political union through the blitzkrieg of a single currency. Unable to borrow, Greece must somehow work its way out of debt.
But it cannot do this with an exchange rate so grotesque that all labour and capital flees its shores, dumping on London’s property market. The bankers’ ramp that has long enslaved the Greek people in debt bondage now impedes their orderly escape.
Britain is lucky. Thanks to Gordon Brown facing down Tony Blair, it escaped debt bondage by keeping a flexible pound. But the challenge to its rulers is the same as in Greece. No country’s debt can be waved away. The argument of the chancellor, George Osborne, has held sway.
With debt still rising and with cutbacks to public spending barely reverting to 2005 levels, he can argue that there is no room to loosen the public purse. This is reinforced by news this week that Britain’s credit rating is effectively on hold.
Osborne is acutely aware, because he keeps saying so, that he needs rising tax revenues to finance his debt recovery. If this cannot come from higher public spending, it must come from his promise in 2010 of an expanding private sector. He must somehow maintain the creditworthiness of the public finances while also finding a swift, off-budget stimulus to growth.
No purpose was ever served by locking Dorrit in Marshalsea prison and thus stopping him from earning the means of repayment. Britain is likewise imprisoned in austerity without any early means of debt relief. Germany’s private sector is booming while Britain’s is dormant. nThe question of what to do about this should not need political grandstanding between Osborne and his Labour opponent, Ed Balls, who both seem equally baffled by events.
It needs a brisk but searching commission of economic inquiry, in public, to determine the balance between credit risk and demand stimulus.
This is needed not just for Britain but for all Europe. Incessant summits, idiot headlines about “four days to save the euro”, angry exchanges and half-baked reschedulings show only puny statesmen rearranging beach furniture in a hurricane.
Britain has one option not available to the countries of the eurozone. It can print its own currency, and do so with little present risk of inflation. It can print money without damaging the balance of taxing and spending.
It can even print money with the agreement of the credit rating agencies, the OECD, the IMF and others, now increasingly worried that austerity is killing the goose that should be laying the golden eggs of growth.
The one ghost of history that horrifies Europe’s rulers is that of Germany’s interwar hyperinflation and its outcome in the rise of Hitler.
Many things are happening in Europe just now that might lead to Weimar, but monetary inflation is the least of them. So far, the government has authorised money to be printed to give to banks, through quantitative easing, but it has been stored in their vaults and balance sheets.
Despite endless debate and argument in bank circles, there is no evidence that the cash has done anything to stimulate demand, indeed the reverse, in reducing pensions by suppressing interest rates. It is supposed to be “injected into the economy”, yet it does no such thing.
We revert to Dorrit. It makes no sense to drive an economy into recession where it stops people from working and thus paying more taxes. Growth starts not with bank investment but with demand.
It starts with more money flowing down the high street. Here the curse is not Weimar but a bank-obsessed Treasury, fighting war with antique weapons such as quantitative easing that disintegrate in their hands. They can bring themselves to print money for banks, but not for ordinary people – through scrappage schemes, vouchers, corporate job-creation projects and other such off-budget stimuluses tried abroad. These methods need have no more impact on budgetary austerity than does money given to banks.
The failure to take economic management beyond the diktats of austerity has become the great intellectual treason of today.
For three years it has trapped governments, economists, bankers and media in a collective miasma of panic about inflation. Thousands of citizens across Europe are having their lives ruined and their children’s prospects blighted because a financial elite, once burned, is too shy to think out of its box. It refuses to stimulate demand merely because that is not the done thing to do.