The government’s immediate response was unsurprising, pouring cold water on the idea that the council would be allowed to borrow more money, with community minister Nick Boles stating:
Reducing the deficit left by the last administration is essential to keep interest rates down and ensure long-term economic growth and stability.
It leaves us wondering just what they think “long term” means. Since the coalition came into power in 2010, we have seen economic growth stop, and GDP bounce around zero growth with a double dip recession and only narrowly avoiding a triple dip. Real wages continue to fall with real wages for average earners reduced back to 2003 levels as inflation continues to push prices up, especially on key items like food, fuel and rent. The fall in wage values, cuts in benefits and increasingly draconian sanction regimes have left half a million people reliant on food banks for survival.
And the deficit? Reduced by just £300m in 2012/13, and then only by a combination of including the one-off G4 mobile phone licences and by delaying at least £1.6bn of government payments that should have been made in March by a month – pushing them onto April and the 2013/14 financial year.
I suppose you could argue that zero growth is stability, but how long do we need to see the results of austerity before we decide that trying to reduce the deficit by cutting government spending is self-defeating when the global economy is not growing.
Instead we should follow a different strategy – make growth, wages and spending the short term targets, and reducing the deficit the long term target. By borrowing money now and investing it in profitable infrastructure we create growth and jobs, and have direct control over wages which we can set at a living wage and thus increase spending and demand in the economy.
The stimulus created will help the private sector and see an increase in tax receipts and a decrease in benefit payments that will offset the cost of borrowing, whilst in the long term the income generated from the infrastructure that is built will more than cover the costs of the debt and interest repayments and see the deficit being reduced. We do not seek to borrow our way out of a deficit crisis, we seek to invest our way out of a demand crisis.
Unfortunately, both the Birmingham Mail and the coalition government seek to perpetuate myths by comparing this to borrowing on a credit card. This idea is clearly flawed for some simple reasons:
1) Credit card debt is unsecured, this borrowing would be secured against the assets of council housing
2) Credit card interest rates are usually over 15%, sometimes over 20%. The government can borrow at 0.5%-1%
4) Government borrowing is done to invest in profitable infrastructure. Credit card’s are used to borrow to consume.
3) When the government borrows and spends it also increases tax income and decreases benefit payments both directly (public sector workers paying income tax/NI, VAT on purchases made using the borrowed money) and indirectly (stimulating the private sector).
The analogy is so flawed that it is our opinion that you should disregard anything that someone uses it has to say about economics, as they are demonstrating that they do not understand some of the first principles of the economy.
Right now we stand at a point in history where there is spare capacity in the economy, where our government can borrow at some of the lowest interest rates in recent history and where we have huge infrastructure projects that need to be undertaken if we are to move past climate change. Instead of taking advantage of the situation, the coalition are making things worse with a commitment to austerity and neo-liberal policies that are impoverishing 90% of people, whilst the richest continue to get richer.
So let us hope that Labour manage to convince the coalition to allow them to borrow this money, to build housing that will create jobs in the struggling construction sector, build the housing that we are going to need over the next 20 years, build environmentally effective housing that helps us move towards a sustainable zero-carbon economy and reduce the housing benefit bill because people will move from expensive private rentals to cheaper social rentals.