Credit ratings agency Moody’s have cut the UK’s rating from triple A to AA1. For George Osborne, this is a disaster: if all else failed – and it pretty well has – he could always claim his monomaniacal pursuit of austerity was justified by maintaining the UK’s gold-plated credit rating. Now, even that has gone.
It is, of course, the first time in its history that Britain’s credit has been considered anything other than strictly grade-A. While the UK remains one of only a handful of countries worldwide to essentially never have defaulted on – failed to repay – its national debt, Moody’s estimate that the chance of this occurring has become (in theory) ever so marginally closer.
The immediate impact will be limited. The announcement was expected, Moody’s having put the UK back on “negative watch” for a downgrade a year ago, and so was priced into the rate of interest the government could borrow at on capital markets. Nor does Moody’s reasoning tell us anything we didn’t already know: Osborne’s austerity programme is failing and “a period of sluggish growth… will extend into the second half of the decade.”
The actual authority of the credit rating agencies, like Moody’s, is generally overstated. They tend to follow, rather than to lead, market opinion. In this case, the price of the UK government’s borrowing had already been creeping up, reflecting the (correct) market perception of a stalling economy and a failing administration. What Moody’s have done is confirm this.
But the confirmation is important, for a reason that tends to get overlooked behind the technicalities. Stories matter for economics. In the absence of real scientific data, or the ability to conduct experiments, convincing economic narratives matter. We can’t know with precision what the future will hold, nor can we know for certain what impact our decisions will have. Part of the way we deal with this is to revert back to Adam Smith’s depiction of economics as a “moral science”. There is a method of analysis involved but decisions, in the end, will be based not on technical criteria but on judgement and questions about values.
For a decade, at least, these questions were not allowed to intrude on how economic policies were made. Whatever moral objections any of us may have to privatisation or tax cuts for the wealthy, they were unimportant compared to the hard, technical results the economic mainstream provided us with. Decisions about what sort of economy and society we would want to live in were pushed to one side: governments around the world, including, notoriously, New Labour, believed that by listening to what the mainstream of economics told them, they would end “boom and bust”. Economic decision-making was simply about managing a technical problem as best as possible.
This was a story, if a dull one. We could vote on whether to ban foxhunting, or have a Prime Minister commentate on Coronation Street. But economic questions could never be addressed. All that was required was competent economic management. For a while, this story appeared to match reality. The financial crash and the recession of 2008-9 shattered the illusion. Mervyn King’s NICE decade had a nasty underbelly: the colossal expansion of the debt bubble that maintained the semblance of prosperity, which duly (and inevitably) burst.
A new story was hastily thrown together. Osborne and Cameron, barely as soon as the dust had settled on the ruins of Lehman Brothers, began pushing it, and have gone on pushing it ever since. The new story acknowledged the debt bubble – but claimed, quite contrary to the facts, that it was the debt of the public sector that presented the biggest single menace. We had “maxed out our credit card”. The “cupboard was bare”. What was needed, then, was austerity on a grand scale: reduced spending to drag the economy back onto an even keel. After the Coalition was formed in May 2010, Osborne set about doing exactly that.
This was risible at the time, and looks wholly idiotic now. For very good, well-understood reasons, the worst possible course of action for any government to follow in a recession, or when economy is weak, is to cut spending. Government spending cuts mean falling demand for goods and services. Falling demand for goods and services means fewer people employed to provide them – or, as has happened in the UK, almost the same people employed for fewer hours and less money. Spending cuts make a recession worse – exactly as has happened over the last few years.
The credit rating agencies, then, when they present their own stories may not tell us anything new. But they take the great mass of economic data and complex problems and reduce them to a clear narrative. The technical is made comprehensible. That’s part of the reason Osborne attached so much weight to the credit rating agencies’ stories: they said what he wanted to hear, on the basis of apparent, independent authority.
But there is no reason to believe their story over any other. The rating agencies have pushed hard at the cupboard-is-bare fantasy over the last few years, providing a cover for governments – like ours – wanting to pursue the same course. Even as the story and the reality it claims to represent become very obviously detached, neither the ratings agencies nor the government show any sign of deviation from the script.
That’s where the alternative matters. There are other scripts that can be written: ones that stress the importance of solidarity, ahead of competition, or the need to defend the common and the public from the incursions of the private. More prosaically, there is a pressing need for those of us who support these values to offer a credible alternative story to disintegrating Osbornomics: one that starts from the miserable and worsening conditions of today, and offers a clear route somewhere else. The People’s Assembly, called for 22 June, can be one important forum where such a credible story can begin to be fleshed out.
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