Frequently Asserted Fallacies of the Crisis and How to Quash Them

By Contributors, 7 December 2010
Image: Claude Cahun, Untitled, 1939. Annotated (on the verso), 'A monster out of the game, an island of mirrors´

The media 'debate' surrounding the long awaited and, talking heads would have us believe, imperative spending cuts has been conspicuously lacking in any real examination of its premises. As with financial assets, the fallacious claims on economic and political truth seem to appreciate through the simple act of circulation - and for want of anything more productive. Time, then, for a corrective write-down of these fictitious claims on truth. (Watch this page for further fallacy quashing)


1) The wasteful state sector must be cut back to make room for private investment, competition and efficient services

The idea of distinct public and private sectors has been nonsense internationally since the mid 20th century at the latest, with military and other subsidies supplementing ever diminishing returns on invested capital. But the absurdity took on new dimensions in Britain over the last 20 years, and will only be amplified by the present cuts and ongoing bail-outs. The giveaway is the talk about ‘making room' for private efficiency, which is code for the state taking on the liability for activities which private business can profit from on that basis and no other. Witness the circular magic of PFI: the state keeps borrowing off the books by paying off a ‘private' provider's more expensive debt over decades, while the provider, freed from this liability, makes a profit on otherwise uneconomic street cleaning, hospital IT or deportations thanks to fees paid by... the state.

Many of the fastest growing ‘private' UK companies (Capita, Serco...) live exclusively from such sinecures, which account for much of the non-financial ‘private sector' growth of the ‘boom' years. Conversely, the supposed ‘state capture' of the non-London economy under Labour was largely an expansion of this ‘private' service racket into a productive void. Bank bail-outs took this ‘socialising of liability and privatising of profit' towards its logical conclusion, and fiscal ‘cuts' will amount to more of the same; after all there's been little pretence that the state commands much economic ‘room' to withdraw from other than in sectors it must ultimately keep paying for itself. A particular growth area to watch out for will be the policing - in the broadest sense - of private (or rather social) life. In this respect the scope of the state (and its private ‘partners') really was extended under Labour: 3,000+ new criminal offences, unlimited ad hoc ‘anti-social crimes', databasing for the ‘at-risk' and intervention for the ‘hard-to-reach', etc. The trend is sure to continue unchecked by ‘libertarian' coalition scruples because, as the concentration of monitoring and punishment on benefits and housing access shows, the discipline in question efficiently targets a particular social class.

2) Cutting benefits will get scroungers working hard like the rest of us


Workhouses were essentially benevolent places

- actor Simon Callow, Evening Standard,campaigning to save the ‘heritage' represented by a Victorian labour prison


Even politicians and the consultants in charge of them can do enough basic arithmetic to see that individual employment status - when the jobless outnumber jobs advertised by five to one (or by much more including the sickness claimants about to be dumped on Job Seeker's Allowance) - is as much a matter of ‘personal responsibility' as winning or losing at online poker. The pretence to the contrary is itself a desperate gamble: as the improbability of ‘earning' a living through labour becomes common knowledge, the ‘boom' era psychology of personal success and failure is played one more time for all it's worth.

The criminal and welfare enforcement systems, often run by the same private contractors, continue to converge: ‘community service', paid informers, lie detectors, drug testing and cognitive behavioural therapy. Another push in this direction, the think-tankers seem to dream, might keep ‘hard grafters' loathing ‘hopeless cases', at least until they join them. More prosaically - though even less rationally - employers have complained since well before the crisis about a ‘basic skills' shortage, by which they mean ‘work habits' or spontaneous servility. Some of their political proxies may actually be ignorant enough of global conditions to believe that a renaissance of voluntary servitude (a.k.a. ‘flexibility') would make ‘national' capital internationally ‘competitive' again. In any case it must be hoped that the latest scheme to instil the desired ‘work ethic' does what its backers say (though not what they intend). Compulsory voluntary labour for 30 hours a week is supposed to teach dole claimants ‘the meaning of work', and by replacing any last delusion of ‘dignity' with outright blackmail, that is exactly what it should do.

3) Housing benefit is an unfair subsidy

The amount of housing benefit currently paid out (increasing overall even as individual entitlement is squeezed) reflects the much larger subsidies pumped, as a matter of policy, into the private real estate market over the last three decades. Since waste was successfully laid to the former council housing system, this has been obvious in the transfer of benefits to private landlords charging rents appropriate to a wildly inflated property market. But state support for property wealth - and the latter's equation with ‘national prosperity' in a post-productive economy - has run much deeper for a long time.

There's too little space to list every instance here, but early highlights included: ‘right to buy' / new council building ban (1979); letting deregulation (1988); concentration of tax burden on labour and consumption rather than land and capital gains, e.g. (but by no means exclusively) replacement of residential rates with poll tax / council tax (1989-93); a planning system geared towards artificial scarcity and the consequent high value of urban land. After 1997 all of the above was cheerfully maintained by Labour governments, whose property boosterism was if anything even more overt, under the heading of ‘urban regeneration': tax breaks and direct subsidy to gentrification projects (Housing Market Renewal, Local Development Agencies etc.); state-market housing ‘convergence' (stock transfer to private ‘social' landlords; ‘affordable' private ownership for incomes of £20,000+).

Low-income housing in Britain was partially subsidised through most of the 20th century for fear of the social consequences of the market's inability to provide for the propertyless population. More recent has been the strain on the surviving part of the subsidy (housing benefit) as its complement (council housing) atrophied and the (subsidised) property bubble bulged, and (as seen in ‘scandals' like temporary homeless accommodation in Canary Wharf penthouses) the channelling of the public housing subsidy directly into the subsidy for property wealth. The ‘Highland Clearances' relished in London by clear-sighted Tories merely represent the next stage of the process: a fresh round of primitive property accumulation and a golden opportunity (or last illusion?) for those still sitting on a hoard.

NB. Certain supporters of housing benefit demolition have suddenly discovered the existence of large numbers of low-income non-claimants paying exorbitant private rents. Needless to say, this real and intolerable phenomenon is another product of the policy-driven property steroid system described above. What does need to be said is that, far from alleviating working tenants' plight (except in behavioural economists' terms of ‘fairness', or equal punishment for all), the Clearances will worsen it by increasing congestion and competition at the bottom end of the private rental market. Unsubsidised tenants not legally bound to the 30th percentile will be forced to ‘upgrade' into further impoverishment, while the solvent young professionals currently submitting sealed bids for gap-decade garrets will simply have more of central London to choose from.

4) The cuts are a response to a crisis inherited from New Labour and its mismanagement of the economy

The present cuts are an effort to renew previous British governments' modest but exemplary contribution to the global crisis. The 1997 Labour administration inherited the job of promoting Britain's (or the City of London's) niche role in the global inflation of financial claims on finite, real wealth and the labour producing it. The relative success of Brown et al at this task guaranteed British capital plenty of what markets call ‘exposure' to the inevitable (and unfinished) global implosion of inflated asset ‘values', i.e. claims.

The ‘Tory' cuts continue Labour's service to the crisis-system by putting a price on the desperate attempt to reflate assets, i.e. to preserve the mechanism if not the magnitude of the delusive ‘boom' (see: bank recapitalisation, zero interest rates/QE, and the unshakeable convic-tion that real estate prices must be revived). This has proved the only palatable institutional ‘response' to crisis anywhere large capital claims are at stake, but it feels even more like visceral necessity to the state stewards of an economy whose role in the global division of labour is so tightly bound to administration of asset prices and recirculation of the spoils as ‘services'.

On the abstract plane projected by a few Marxists and bond market ‘bears', profitability for capital ‘in general' could only be revived through total social write-down, a spasm of destruction reducing the world to a ‘growth opportunity' like 18th century Bengal or post-WW2 Europe. But self-conscious existence ‘in general' is not in the nature of capital: the logic of ‘competitiveness' requires that every business, sector and nation state squirm to the death against cancellation of its own particular claims, without a thought for exploitation's greater glory. So ‘sacrifice' must be devolved downward instead, the price of labour squeezed and competitive fever reheated between ‘labour units' at individual, corporate and national levels. What remains to be seen is how much those at the sharp end of this transitive sacrifice* are willing to suffer in order to grant the capitals claiming their loyalty a transient reprieve.

*Transitive as in: ‘the priest sacrificed the captive enemy', rather than reflexive as in: ‘the soldier's heroic [self-]sacrifice' (although in common usage, the second is nothing but a self-serving version of the first stated from the point of view of military priests).

5) Quantitative Easing will lead to a revival of production, consumption and growth

Quantitative Easing (QE) is a method of increasing the money supply by which central banks increase the liquid assets of capitalist-run banks. It has been used, when interest rates are already at historically unprecedentedly low levels, in the UK, USA and to a lesser extent, and despite internal opposition, by the European Central Bank. Its stated aim is to increase ‘economic activity' and employment. But it cannot direct where this cheap money should be lent because that would be ‘socialism'. (In the USA, however, such direct subsidy of chosen production has of course occurred through the Defense Department's massive budget for contracts and R&D.) The direct creation of federal jobs in the US would also be too ‘socialist' a form of Keynesianism, while in Europe public job cutting is the order of the day. In these circumstances, it is not surprising that QE has instead been used to prop up banks' capital base as well as creating cheap funds for financial speculation and the purchase of real assets at knock-down prices.

The USA's position is special because of the unique and self-perpetuating role of the dollar as global reserve currency. This recently allowed for a further $600 billion of QE the results of which have been: yet another commercial real estate ‘boom'; a bout of non-profit-making company IPOs and leveraged deals; the Russell Stock Exchange rising by 21 percent since September 2010; stock markets reaching a 30 month high in emerging markets; and the Thai currency (the starting point of the 1997-8 East Asian bubble-and-crash) reaching a 13 year high. For most people in the world, the result is likely to be higher food prices as a result of agricultural commodity speculation and the acquisition of real asset components in the food production chain, from land to seeds and grain silos.

This latest round of QE brought serious criticism from China on the grounds that it was a de facto devaluation of the US dollar, and from Germany on the same grounds and, rightly enough, because it would create a new financial bubble. Ironically, German insistence on financial ‘discipline' and a belief in the fantasy of the independence of money (materialised as balanced budgets written into its constitution), allied with the self-interested pessimism of the bond market, has led to yields on various European sovereign debts matching those looked for in ‘emerging market' speculation. This makes the enforcement of policies with the stated aim of achieving close-to-balanced budgets in other countries not pointless masochism, but a pointed capitalist class offensive.

6) Increased student fees constitute a socially progressive graduate tax in all but name

The raising of the fee-cap from £3,290 to £9,000 per year constitutes a risk-free programme of social exclusion, in which the middle and upper classes are charged a ‘fair' rate for an education that will allow them to reap the economic benefits of employment in a newly desaturated graduate jobs market. The excluded working classes will be generously relieved of the tax burden of supporting their high-born compatriots, while that second group's greater access to education resources will relieve them of the need to compete with or live in the same areas as their one-time beneficiaries. Working class people will not pay for what they will be structurally encouraged not to ‘get', unless of course they belong to the category of the meritoriously obedient with the ‘desired mind set'; and the ‘diversity' that the Browne Report ceaselessly enjoins will essentially be the reinforced diversity of class positions in a system of ever more differential access to social goods.

Opponents of the centre-left proposal for a graduate tax claim that such a measure faces insuperable ‘technical' difficulties. First among these is that it will ‘arbitrarily' tax the richest graduates on some of their later income. Due to their reasonable refusal to countenance a £40,000 debt (liable to be auctioned off at some future date to profit-seeking financial institutions), most impoverished teenagers will be unable to become graduates, but this alas does not qualify as a ‘technical' difficulty and so remains perfectly tolerable. Meanwhile the Adam Smith Institute tactfully advocates that ‘tuition fees' be renamed ‘graduate income repayments' as a means of diminishing popular discontent which, with quintessential superciliousness, it believes to be directed merely towards concepts and phrases.

As the UK economy is helped to ‘grow its way out of recession', and to flatten in the process all those reliant on state support, the UK Higher Education (HE) sector will shrink to fit the plans of a political class who now recognise that ‘massified' HE need not be too massified and ought at any rate to resemble a factory more than an agora. Those left in e.g. non-elite English departments will spend their time managing newly prioritised ‘student demand' for the Siamese twins of transferable skills training and culture industry pulp, no doubt striving in their ‘free time' to demonstrate that their research will issue in new, marketable concepts in ‘homeland security'. Thus Lord Browne's beautiful image of a ‘sustainable' and ‘fair' Higher Education system.