It isn’t Brexit. It’s the austerity, stupid

There is always a well-known solution to every human problem — neat, plausible, and wrong.

That was the American journalist H. L. Mencken in 1917. His words keep coming to mind whenever I hear some Brexiter explaining that it’s time for the debate to end, and for Britain simply to leave. ‘Out is out’ one told me recently, uninterested in the obvious truth that even to leave a room requires choosing a doorway (or possibly a window), and that it might be best to pick one that led somewhere one actually wanted to go.

An interesting new attitude has also developed on the so-called left. I say ‘so-called’ because the real left has always been internationalist, whereas this strange left, inside Britain’s Labour Party today, is dominated by Little-England thinking. Some even argue that it’s easier to bring in a socialist programme in a small country, like Britain, rather than a large collection of nations, like Europe.

Stalin argued the same for the Soviet Union. And it didn’t work for him either.

These Lexiters (left-wing Brexiters) argue that the argument about the EU is a distraction from the real questions. A recent internet piece points out that these are austerity, the NHS, benefits payments, housing, food banks and homelessness (I’m not sure how homelessness and housing are distinct issues but, hey, I didn’t compose this list).

Lexiter propaganda: they have a little list...

Within that list, the most important issue is austerity. It is at the root of the other problems. It is the policy of reducing government spending in order to stop piling up public debt.

It’s based on thinking appropriate to an ordinary household. If I were to start spending significantly less, I could build up some savings and certainly avoid debt. The same, austerity politicians believe, is true of government.

However, if I changed my spending rather than reducing it, I might do far better. If, for instance, I bought another house and rented it out, I might be out of pocket for a while but, once inflation had boosted the rent above the loan repayments for the house purchase, I would be making money. On top of that, in the long run, I would have not only the rental income, but a fully paid-for asset in the form of the house.

Governments, too, can make investments that yield returns. For instance, to take one of the other examples from the list, it could pay for a lot of new housing. That would help tackle the problem of homelessness. It would also boost employment, reducing dependence on benefits and food banks – other items on the list. It would cost money at first, but in time the tax paid by the building workers might well outstrip the cost of investment, and with rents coming in on top of those taxes (or indeed income from house sales), the public sector is more than likely to end up making money. That means it could invest in the NHS and even, in time, begin to pay down public debt.

This is a special instance of an economic phenomenon known since the eighteenth century: the paradox of thrift. Saving money reduces spending and therefore takes demand out of the economy, leading to its contraction. That means that the revenue of a government pursuing austerity falls and, if its reaction is to reduce spending further, it takes more demand out and accelerates a downward spiral.

But who’s right? Does austerity economics actually work or is it true that there’s a paradox of thrift?

When the Conservatives came to power, leading a coalition in 2010 and on their own since 2015, public debt stood at just over £1.2 trillion. Nine years on, it’s a little over £1.8 trillion.

A centrepiece of the Conservative campaign in 2010 was that it was iniquitous to burden future generations with paying so massive a debt. But, far from reducing the burden, the Tories’ austerity policies have massively increased it.

So it makes sense for Labour to campaign to reverse austerity. Simple.

Simple maybe. But it leaves out a massive element of difficulty, so obvious that it’s hard to believe its proponents have missed it. Reversing austerity would certainly improve our position in Britain, if we could do it from our present level.

But Brexit will increase unemployment and prices. The change would be relatively small if Brexit were soft, far larger following a hard Brexit. That would make the benign cycle, of investment leading to more work, leading to more revenue, far harder to launch.

As the Red Queen told Alice in Through the Looking Glass: 

... here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!

The Brexit race:
run as fast as you can and you might just stand still

Brexit will take us into a looking-glass world where we have to run very fast just to get back to where are now. And a lot faster still to improve.

That’s why combatting Brexit isn’t a distraction from the campaign against austerity. It’s an essential component of it.