Austerity or prosperity

By Chris Cook

In the aftermath of the G7/G20 meeting the dominant rhetoric is becoming clear. We now know that from Austerity will emerge Prosperity. So the way to increase economic activity is….errr….to take the axe to economic activity.

Michael Hudson has written a brilliant analysis Europe’s Fiscal Dystopia of what he sees as the road to financial serfdom proposed by European politicians he sees as being in thrall to the banks. My view is that far greater forces are actually in play here, and that Europe is only one player in the global game.

Firstly, there is the catastrophic state of the US economy. Global attention has been briefly distracted from this by the speculative attacks of the financial hyenas on the weakest of the European herd (i.e. Greece, and with Spain to follow). The US is sceptical of European (or almost any) Austerity because they know that austere contracting economies will be unable to continue to fund the US deficit.

Secondly, there is the tendency of the G7 in particular to ignore their status as debtor nations on a cosmic scale. How many barrels has the G7? And exactly how long will the rest of the world be prepared to accept intrinsically worthless Dollar or Euro IOUs in payment?

But there is a paradox at work here. Those nations where equity, solidarity, mutuality, and wealth/income equality are greatest, such as the Nordics and Germany, are those least in need of Austerity, not that their politicians necessarily believe this to be the case. In fact these are the countries, through their solidarity and discipline, best able to implement Austerity policies. Those more exuberant nations with less of a disciplined tradition, and with less orderly governance, are those most in ‘need’ of Austerity, but conversely, are also those least likely to accept it, and rather to riot on the streets or to dump manure on ministerial doorsteps. The result is the paradox that those who least need Austerity are those most likely to implement it.

But what is the alternative to Austerity? It is actually quite simple. There is only a scarcity of money because we are led to believe that private banks must necessarily create it, and our entire conventional Economics is based on this misconception. If private banks can and do create credit, either as interest-bearing loans, or simply to pay their staff, costs and dividends to shareholders, then why should not a Treasury or Central Bank do the same, provided it is professionally risk managed by service providers with a stake in the outcome, and under the accountable supervision of a monetary authority?

It is in fact in banks’ interests to transition to a position as service providers, rather than middlemen, because this means that they will only need enough capital to support their operating costs, rather than the immense amount needed to guard against defaults. Even more radical, and consistent with the direct ‘Peer to Peer’ connections of the Internet — which makes all intermediaries, Private or Public, redundant – why should not individuals and businesses extend each other credit, backed by a mutual guarantee, and a suitable framework of trust? Or why should not credit be based directly upon the use value of the productive assets, such as land, rather than the credit of the person who owns them?

Just a couple of post-Budget conversations with Scottish civil servants last week confirmed my instinct that in lighting the blue Austerity touchpaper, the UK government may well have started a conflagration in our Big Society which they cannot stop, the outcome of which will horrify the Tories’ core constituency of the wealthy and privileged.

This budget will lead to the consideration of new and radical options throughout the UK by executives fearful for their jobs, which would never otherwise have been countenanced. It could also lead to the union movement realising that in fact the “Big Society” represents not a threat, but an open goal for their members to take the ball from the government and stroll it into an empty net.

The truth is that there is no need for Austerity. We have all the resources we need — if we act together to a common purpose and share the gains — to lead the world to a new era of Prosperity. Professor Hudson fears the rolling back of the 17th/18th century Enlightenment, but I am more optimistic: I believe we are about to see a 21st Century Enlightenment.