Debunking the long-held myths that keep austerity alive

John Week’s The Debt Delusion: Living Within our Means and Other Fallacies is a thought provoking book for a variety of reasons, not least of which is the sheer impossibility of separating economics from the social and political context that shapes the policies we all have to live with. This not only undermines the idea that economics could ever be considered a natural science (no matter how much many economists would like it to be). It also brings to light the myths that have been popularised to justify the form of liberal capitalism that has dominated much of the world’s economy since the days of Margaret Thatcher and Ronald Reagan.

These myths – or as the book’s subtitle puts it, “fallacies” – are of course, in reality, something entirely different: they’re advertising copy lines which together form a compelling sales pitch. To the many who take them at face value, these myths feel like they should be true. For example, an apparently powerful justification for economic austerity – cutting public spending to “balance the government’s budget and pay down the national debt” – is the idea that a government’s budget can be likened to that of a household or business. But even a quick look at the increase in non-mortgage debt in the UK, during the two years before 2019, would soon undermine the argument that public debt is comparable to household or business debt.

However, when it comes to economics, not many citizens take the time to dig beneath the surface and decide for themselves how the ideas on offer actually stack up. That is fairly surprising, given the regular financial crises, and rising levels of poverty and inequality that many nations are saddled with. Those familiar exhortations, “We must live within our means”, “We should tighten our belts”, “Taxes are a burden” and “Austerity – there is no alternative”, are therefore rarely questioned.

When you look at the size and complexity of John Maynard Keynes’s General Theory of Employment, Interest and Money, it is perhaps not hard to see why. Most ads on TV talk about the many wonders that will inevitably follow if you buy, for example, the latest anti-ageing cream. But they don’t go into the complexities of how it’s made, where it was “clinically tested”, or indeed, exactly what the “X number of signs of ageing” it will “fight” actually are. The ad is not intended to inform or analyse; it is intended to produce an emotional response – as are the tired old austerity slogans.

It’s not as though there are no alternative ways of looking at the economy; and Week’s book certainly sets out a compelling view on how at least some of these might significantly improve our lot. After all, separating economics from society is at least as problematic as filtering out the politics. Thus, an important theme in The Debt Delusion is the inter-relationship between the economy and society, and the government’s responsibility – and political mandate – to further the interests of its citizens.

In his book, Weeks sets out to debunk six powerful myths that have been used to justify austerity:

1. We must live within our means
2. Governments must balance their books
3. We must tighten our belts
4. Never go into debt
5. Taxes are a burden
6. Austerity: there is no alternative

But he is not dogmatic in his perspective. Rather than austerity – or deficit spending, for that matter – being “good or “bad”, he sees both as useful economic tools that need to be wisely applied; and he shows how taxes can actually provide value.

In his discussion of debt, Weeks distinguishes “productive” debt – whether public or private – from other uses of debt that can lead to ruin. When a government accumulates debt by purchasing assets or investing in infrastructure, for example – some of which generate income (like social housing) or serve important social functions (like hospitals, schools and public transport) – the resulting asset or investment has the potential to effectively pay for itself. Governments also borrow short-term to manage economic emergencies, such as to combat unemployment or social hardship during a recession, which is repaid during the recovery, when unemployment-related social costs naturally fall at the same time as tax revenues increase.

Weeks goes on to show how the dynamics of private debt – which since the 1980s has been driven by the sustained attack on workers’ wages and incomes – are entirely different. In explaining this, he differentiates “secured” debt (such as a mortgage), which is backed by an asset, from “unsecured” debt, such as a pay-day loan; and he makes the important point that while the wealthy take on debt to buy an asset, which increases their wealth, the poor borrow to survive.

Having laid this out, Weeks contends that if a society is well managed, in terms of its health, education, infrastructure, environment and other public goods – and prioritises the welfare of its people, “the benign circle in which all benefit” – it will also be able to manage its debt. He concludes by challenging the idea – popularised by Thatcher – that “there is no alternative” (TINA) to austerity or, by extension, neoliberal economics.

The Debt Delusion shows that there is more than one kind of economics. It also demonstrates that the alternative approaches need a far better sales pitch, especially when it comes to national elections. Effectively communicating new ideas will take some significant thought, especially as it will involve debunking many long-held myths. Opposition to the idea of national debt goes back at least as far as the establishment of the Bank of England in the late 17th century. Those early opponents of borrowing could at least be forgiven for being wary. After all, they, unlike modern politicians, didn’t have a couple of centuries or so of experience to draw upon. They could even be forgiven for comparing national debt to household debt, since automatic stabilisers only started to appear during the first decades of the 20th century.

How some economists and politicians can still ignore this is something of a mystery. But it does show the scale of the task confronting those who are trying to garner votes for a new kind of economics. In the meantime, for those wanting a clear, engaging, and above all, accessible grounding in how economics actually works – as well as how it could make life considerably better for most of us – The Debt Delusion is a good place to start.