The IMF report on austerity and debt reduction has attracted a fair bit of attention, largely because it suggest the UK’s austerity is unnecessary.

But this misses the other side of austerity. Because the UK’s financial system is at an exceptional risk of systemic failure, there is a compelling need to clear what the authors call “fiscal space”. This is underplayed in the report, not least because it uses a closed-economy model – but the UK has the highest external debts of any large developed economy.

This is the grim logic of the situation we’re in: our financial system is at permanent risk of collapse, so austerity must, in Cameron’s phrase, also become permanent. And we end up with an entire political system gradually adapting itself to that reality.

James Meadway

If the permanent necessity of austerity is argued on the basis of a concept of economy dominated by a systemically risky financial system, then the arbitrariness of austerity can only be argued on the basis that economics should be neither exhausted in, nor dominated by, the management of financial risk. In such absolutely synchronous, amnesiac times as these, it can only be demonstrated: that the practice of economics is something other than exposure to financial risk. Yet how can this be demonstrated by a state that has given all its power and law to regulate the economy away, on the one hand to financial institutions, and on the other hand, to the principle of corporate self-management (while growing the power and law to regulate the lives of subjects)? If the ‘logic’ of the situation is grim, then it is because the underlying axioms defining the conditions of the situation, accepted without discussion, were grim to begin with. In other words, the grimness lies much more in that initial assent and acquiescence to those parameters than in the situation which, merely following those rules, results from it.

Furthermore, for whom is the situation grim? For the elites chewing tender lobster in their expensive dress-suits, mounted on cosy years of security? No: for our masters it is not a grim situation but the very definition of paradise on Earth. Grim is the task of storming that gilded blue-skied heaven with neither cloud nor bolt to summon, nor bodied rabble to profane its girded atrium.

Grimness is the very thing imposed by austerity, its innermost essence or gift — if one can consider this uneven serving of impoverishment a gift. But grim too is the possibility that at some point we might have to cease the bitter reflection on how utterly we have failed, and recompose ourselves with our faces bent forward. Grim is the determination needed to try again from out of a place all hope has abandoned.


Unlike James Meadway I’m not a professional economist but it seems my grasp of the situation and a little reasoning took me a long way. Corroboration comes via comments Meadway later added to the discussion:

Austerity is totally unnecessary from the point of view of British society – if you are also prepared to derisk (which is to say, shrink and demobilise) the financial system.

It’s absolutely necessary if your primary concern is to preserve that financial system.

Asked (by someone else) if austerity will actually clear ‘fiscal space’, Meadway replied:

No, the budget deficit has halved over 2010-2015. (Government debt is still rising, because the deficit is still greater than zero.)

The question then turns into one of economic management: given the objective (clear a “fiscal space” by shirnking government borrowing and, ideally, debt) what is the best rate of reduction of the deficit, given the need to keep growth positive? At some rates of reduction, growth can still continue. At others (as we found over 2010-2012), the rate of reduction will hit growth – which in turn means you have terrible problems shrinking the deficit.

The underlying problem, for our side, is that the objective is rubbish, regardless of squabbles over how to get there.

Like I said. The situation is set in view by assumptions regarding which contingencies (the dominance of finance) must at all cost be protected, and so if the situation appears grim, its because those framing assumptions over what it is and what direction it must move in are grim. It is fiendishly difficult, therefore, to speak of the situation changing in other directions without challenging those assumptions. It is not simply a case of showing that austerity ‘doesn’t work’ or can’t accomplish the task it is argued to accomplish; the point will also be far more to show that the assumed urgency of the task of austerity (the reduction of debt) can be neutralised to some degree through planning an economy which is not subservient to the endless demands for risk from the financial system. Rather than clearing space for (or filling up buckets in order to mop up after) the next big crisis, a crisis always inevitable in a risk-dominated economy, it is patently better to defuse the volatile element that keeps causing the mess. Derisking is a method of prevention and stabilisation, rather than a ‘cure’ that would only ever set up the next crisis while (through austerity) further exposing vulnerable social groups to its impact.

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