In the UK, headlines are dominated by one thing: the hung parliament, and which party, or coalition of parties, is going to take power. Perhaps the subject slips to issues of economic crisis, with mention of uncertainty in the markets over the pound due to the political limbo, not to mention the Eurozone debt crisis emanating from Greece.
Otherwise, anyone would think the world has stopped to watch endless numbers of pundits pore over, continuously, the fact that Liberal Democrat leader Nick Clegg has been in talks with Cameron and Brown.
Meanwhile, thanks to the Institute for Fiscal Studies report released prior to the elections last week, we now know that all three parties fundamentally agree on the extent of the austerity measures designed to close an enormous 163 billion deficit up to around 52 billion of whichno partyhas been able to account for vis-a-vis future economic and fiscal policies.
The big problem is that the three-party consensus on how to deal with the deficit is completely defunct, with Labour, Conservative, and Liberal Democrats all ignoring the most obvious and viable solutions, while skirting the issue of deep-rooted structural reform. AsThe Economistpoints out, looking across the Atlantic but with highly relevant implications over here, it is a "simple truth", that "you don't cut government spending or raise taxes during a recession" citing Washington's Center on Budget and Policy Priorities (CBPP). Rather, if governments should ever run deficits, it should be purely "during recessions to compensate for lack of private demand" efforts to "balance the budget" through spending cuts should occur "during periods of strong economic growth and full employment." The CBPP notes that massive unqualified cuts in government spending in a recession"would reduce the overall demand for goods and services" with reduced expenditures in health, education, and infrastructure leading to increased unemployment, reduced consumption, demand slump and thus declining productivity "and thereby partially or fully cancel out the economic boost that the recovery measures were designed to provide."
Of course, this is not the full picture. Running a deficit is never an optimal option, neither in nor out of a recession and the exponential escalation in deficits of the North over the last decades has been a key structural feature of neoliberal globalization based ona monetary and banking systemwhose structure generates debt through the process of creating money. Indeed, the preceding years of "growth', driven not by productivity gains in the real economy, but by stupendous profits raked in by financial and information services, have relied directly on generating creditbased on accelerating debttied to asset-boom driven speculation.
To Tax or Not to Tax?
The Economist'ssuggestion that raising taxes is not an option is therefore only partially true. It's certainly the case that the solution offered by the three-party consensus which is to raise taxes in such a way that will most likely impact on the majority of the public will of course impact detrimentally by squeezing people's already excruciatingly tight budgets. But that doesn't mean taxes aren't one answer to the issue.
Indeed, as the New Economics Foundation have pointed out and as all three-parties have completely ignored the entire deficit could quite easily be paid off simply by resolving existing "flaws and holes" in the current tax system. It's largely thevery wealthy- people earning up to or over $10 million a year - who benefit from this. Over 100 billion every year is lost "because of loopholes in the tax system, tax bills remaining unpaid and from illegal non-payment of tax." No doubt a percentage of this revenue "would be absorbed by the modest additional resources needed to implement the measures" to strengthen tax collection and crackdown on tax evasion, but it would leave "substantial amounts... available to the public purse." The Lib Dems, to their credit, acknowledge the issue but underestimate potential dividends to a paultry17 bn.
The other eminently viable policy measure, which remains equally ignored by all three parties, is the prospect of making the tax system more fairer and equalising. Former Labour Environment MinisterMichael Meacher MPadvocates, for instance, "taxing the super-rich (a 50% tax on incomes over 100,000 including bonuses, 60% on incomes over 250,000, capital gains tax fixed at the same rate as income tax, ending the non-dom loophole, a Tobin tax of 0.1% on UK stockmarket transactions, much tougher action against tax havens and tax evasion, and a solidarity tax on wealth could yield at least 40bn over a 4 year period)." Perhaps some of these measures seem too much. Earnings over 100,000 a year are certainly about three times theaverage family incomein the UK but do they qualify someone as being "super-rich"? I doubt it - tax at this level would serve to debilitate capital to such an extent it could fundamentally endanger small businesses.
A better option would be to focus taxes on those who really are "super-rich'. Even a0.05 per cent tax, advocated by former chief World Bank economist and Nobel Prize-winnerJoseph Stiglitz, on global banking financial transactions could raise hundreds of billions of pounds a year. The combined wealth of the richest 1,000 people in the country amounts to 333.5bn enough to couldpay off our deficit more than twice over. So let's tax them properly.
Demilitarization is another viable option. TotalUK annual defence expenditureis now around 37 billion 11 per cent higher in real terms than 1990 levels, and 2.5 per cent of the GDP. A large fraction of this just 5 bn annually now has gone to fight the wars in Afghanistan and Iraq. Yet those wars have not made us safer at all. New studies bySimon Fraser Universityand theState Departmentdemonstrate that the rise of fatalities from terrorist activity has occurred not prior to, but in the aftermath of Anglo-American regional military operations. In particular, a groundbreaking quantitative analysis by US political scientistIvan Sascha Sheehan,When Terrorism and Counterterrorism Clash: The War on Terror and the Transformation of Terrorist Activity(New York: Cambria Press, 2007), examines the largest ever terrorism database for the period 1992-2004, documenting a direct "cause and effect" correlation between events such as the offensives in Afghanistan and Iraq, and the "intensity, lethality and regularity" of international terrorism.
Apart from seriously re-thinking the efficacy of counter-insurgency operations in Afghanistan and Pakistan (and that means more than just banally comtemplating the generic need for some defence spending cuts, but an overhaul of our entire understanding of 'security'), we should also take seriously concerns about Britain's Trident nuclear deterrent system. It's not only the Lib Dems who have raised this issue, but even former British Army chief Gen. Sir Richard Dannatt, who is also a defence adviser to the Tories, and who recently suggested that the Trident system would probably beirrelevantafter about five years. Indeed, we now know that the replacement of Trident could cost as much as 100bn, about two-thirds of thedeficit. How will this be sustained without crushing austerity measures to maintain our triple A rating along with, on that basis, further borrowing and growth premised on speculation?
Growing Our Way to Stability?
By deflecting this question, the three-party consensus in effect advocates socializing the costs of the economic crisis with a view to sustain privatized profits for the few the public has to foot the bill to minimize losses for banks and corporations, while maintain our counter-productive military mobilization in far-flung theatres. Meanwhile, we are told, continued economic growth is another solution that will generate enough revenues to close the deficit black-hole.