Financial Crisis, 10 years on: the austerity con that shaped a decade


A great deal of the population was strung along with the idea that austerity was a necessity on a countrywide basis – why would the government be putting us through all this if it didn’t have to? But 10 years on from the financial crash of 2007-2008 the winners and losers are clear, as economic stability has not materialised and for the most of us, our lives continue to get worse rather than better as the rich only continue to increase their wealth.

The deregulation of financial markets in the US, the UK and the Western European economies in the 1970s laid the groundwork that made the financial crash possible, if not inevitable. The actions of governments made credit more easily available, and at the turn of the century, rising unemployment triggered the beginning of a sharp rise in mortgage defaults, especially in the US, where many mortgages were secured on run-down inner city properties and mobile homes.

In 2007 BNP Paribas froze three of their funds, indicating that they had no way of valuing the complex assets inside them known as collateralised debt obligations (CDOs), or packages of sub-prime loans. This was the catalyst for the so called “credit crunch” which was to spread around the world. The run on Northern Rock in 2007 was the first on a British bank in more than a century, as customers flocked to withdraw their money. in 2008 The US’s largest investment bank, Lehman Brothers, collapsed. In the UK, RBS, Lloyds and HBOS had to be rescued with taxpayers’ money.

Most economists independent of “city interests” reckon that austerity cuts are bad for the economy – especially during a recession. If everyone (households and companies) tightens their financial belt at the same time, the result is an economic catastrophe as spending power leeches out of the system in one go. If the government and public sector cut their spending at the same time, this makes the situation far worse. And that is what almost happened in the UK. Austerity suppressed economic activity and thus delayed the recovery, supported by data in a report from the Office for Budget Responsibility (OBR). So why were the measures implemented?

The reason is straightforward: the financial sector has political power, and they didn’t fancy paying for the mess they had created, and decided they’d rather the public did, and hence the politicians implemented public austerity policies. Policy based evidence replaced evidenced based policy. They then realised that the public had been easily convinced that these policies were necessary, and milked the austerity agenda to transfer more and more wealth to the already super rich.

Austerity cuts hit the poor and disabled most – those who did not cause the recession. The wealthy bankers who brought about the crash, credit crunch and recession, which in turn caused tax revenues to plunge and thus the deficit to rapidly increase, have in contrast escaped “scot free”, some evidence suggested that the banks were deliberately manufacturing further turmoil for their own ends.

The status quo had the country almost in hysteria over the UK budget deficit, it had to be eliminated at all costs. But if the Conservatives were really serious about achieving a long-term solution to the UK’s structural deficit it would have to lie in chasing down tax dodgers, given the estimated £120bn lost to the public purse each year through the evasion, avoidance and simple non-payment of taxes owed – but they have shown stubborn reluctance to do anything of the kind, despite claims to the contrary.

How much could history have been different if there had been media balance on austerity economics? We expect bias from the vested interests of newspapers, with their billionaire owners, but from the likes of the BBC, that is somewhat concerning.

Austerity cuts aimed to rapidly reduce the annual deficit, but this effect was lessened as it also cut tax revenue (by reducing economic activity). Deficit reduction is more easily managed when the economy is thriving for all.

The price of austerity has been a long-term decline in the standard of living of the majority of the population, and an acceleration in the transferral of wealth from the poor and middle classes to the richest. The evidence is just as clear that the super-wealthy minority has done incredibly well while the rest of us have been suffering the effects of Tory ideological austerity. In 2015 The Sunday Times revealed that the 1,000 wealthiest people in Britain have doubled their wealth since Labour’s last year in office.

The price of “disaster capitalism” as Naomi Klein would describe it, was made blindingly clear to people when Grenfell tower was consumed in flames, as in the aftermath it seems the tragedy was caused by shortcuts to maximise profit over human safety.

Our economy has begun to recover from the crash, but still, in real terms, wages have stagnated and most continue to suffer from declining living standards – most of the proceeds of economic growth are going to those at the top of the income distribution.

History tells us that real wages and living standards should rise as the economy grows. For every £100 taken home 10 years ago, workers are now taking home £97.80 after allowing for inflation. the UK hasn’t seen a period of such weak income growth since the 19th Century.

Childcare, social care, museums, roads, libraries and others have all felt the axe fall in the austerity drive. Local government spending has fallen 25% in real terms since the crisis. A decade of cuts also means that some key agencies that protect us, such as the Health and Safety Executive and the Environment Agency will have been decimated by up to 60% of funding cuts.

Rail fares have increased at twice the rate of wages, households are £900 worse off due to increased energy bills since 2010, non-retired households still have less money, on average, than before the crash. In 2013, Alan Taylor at VoxEU reported that austerity had cost every household £3,500 – this is now likely much higher.

The average house price now stands at £478,142 in London, compared with the UK average of £209,971. The average wage is around £27,000, and this is over inflated by the likes of Premier League footballers and those at the top of FTSE 100 companies who earn multi-millions.

30,000 people are dying unnecessarily every year because of the cuts to NHS and to local authority social care budgets, and to add the icing to the cake the rise in life expectancy has stalled since 2010, pretty much grinding to a halt after years of an increase pretty much being a given. Life may soon be getting shorter, and we have austerity to thank.

Over one million emergency food parcels were handed out in Britain last year, child poverty levels are setting new highs, more people than ever are employed on insecure zero-hours contracts and face being turned away from work at any time. The people have not only paid for a crash that they did not cause, but continue to pay for increasing CEO bonuses and shareholder payouts, money that often disappears out of the economy and into offshore tax havens – they have paid for the sheer greed of those at the top of society.

Austerity has significantly sped up several-decades-long rise in income inequality and paved the way for the fractured society that we see today. The austerity con will continue to cost society more in the long term.

The financial sector was by far the major cause of the largest recession since WWII, coupled with the neoliberal agenda and a greedy elite class it proved to be a lethal cocktail. Yet now we are in essentially the same position as we were before the crisis, except most people no longer have the resources or ability to find savings from their expenditure to suffer another hit. We are playing with fire, somewhere in the future we are likely to get burned yet again.

Those that insist that the markets are always right, and that the state just gets in the way of progress, can no longer be taken seriously. Austerity is a con, nothing but an excuse for further transferral of wealth, and we’ve all been played. We need a change in how we organise our society for the sake of our very lives, and the future of our society.