‘Greeks choose austerity over chaos,’ said a typical headline on Monday morning. But in truth the argument for austerity is pretty much lost, and we might as well move on to the argument about inequality — and related arguments about volatility, more of which below.
While anti-austerity socialists secured a majority in the French parliament, the pro-austerity New Democracy party limped home in the re-run Greek general election — but with less than 30 per cent of the poll. The coalition that these centre-rightists will try to lead is likely to win a bouquet of extra EU ‘growth’ funding and more time to pay debts, as a reward for saving the euro from the collapse that would surely have followed if the leftwingers who came second, Syriza, had bagged another 200,000 votes. Despite an 11 per cent swing to New Democracy, ‘austerity’ will now, I predict, gradually fade out of the Greek political lexicon.
That’s not to say austerity itself has suddenly become a bad concept, or that it isn’t having a useful impact, at least in terms of international creditworthiness, in Ireland, Italy and the UK. It’s just that when offered even the most unfulfillable promise of something less painful, few voters ever pick the harsher option. I know how isolated New Democracy leader Antonis Samaras must feel: in a recent Intelligence Squared online debate on the motion ‘Austerity is not the answer’, I took the role of pro-austerity advocate. Before the kick-off, only 4 per cent of the first 30,000 viewers to log on across Europe and America were voting my way.
By the time we finished, the number who accepted my argument that austerity in this usage was merely a bleeding-hearts’ synonym for fiscal responsibility, frugal government and paying your taxes — strategies which have never been tried in the eurozone outside Germany — had soared to 17 per cent of 46,500. I’m no psephologist, but I call that a 550 per cent pro-austerity surge.
The trouble was that it made only a tiny dent in the anti-austerity vote, which started at 76 per cent and ended at 74. So (assisted by Matthew Lynn, author of Bust, the best book so far on Greece’s path to euro-perdition) I may have won a rosette for hoovering up global don’t-knows, but our opponents — a coalition of left-leaning economists and special-pleading Greeks — carried off the silver cup, soon no doubt to be brimming with additional bailout largesse for which taxpayers and savers somewhere will have to pay.
More equal than others
If there’s little left to say about austerity — even George Osborne has shifted from hardline Plan A to tentative A Plus with his £100 billion of subsidised credit for business — the debate that will fill the airwaves next will deconstruct another emotive term, ‘inequality’. That the rewards of prosperity are more unequally distributed on both sides of the Atlantic than they were 30 years ago is demonstrated by every relevant statistic: broadly, the top 10 per cent have done at least four times better in real earnings growth than the bottom 10 per cent. That the penalties of a prolonged downturn are unequally shared is also hard to deny, given the fall in elderly savers’ incomes, absence of paid jobs for the young, continuing leaps in FTSE executive pay and failure of the double dip to constrain the lifestyles of the filthy rich.
If I’m starting to sound like a Syriza canvasser, please don’t misunderstand me. I believe the narrowing of income differentials in the post-war decades was a disincentive which contributed hugely to Britain’s relative economic decline, and that the first Thatcherite wave of adjustment was long overdue. I believe the prospect of personal wealth is an entirely healthy incentive to enterprise and hard work.
But this new debate is about more than that: it is about whether inequality itself has made economies more volatile by fuelling asset-price booms, misallocating financial resources and eroding the social cohesion which otherwise makes tough times easier to bear. For a statistical primer, I recommend Stewart Lansley’s The Cost of Inequality, though its subtext of animosity towards business success may irritate. Our own Ferdinand Mount’s The New Few offers a more balanced social perspective, while ex-World Bank economist Joseph Stiglitz is about to fire a parallel broadside from the US, The Price of Inequality. That’s a hefty holiday reading list — but you’ll be glad to have mugged the subject up, because I suspect you’ll be batting it around the dinner table all next winter.
The banker’s art
If you’re connected to the financial world, you might also find yourself arguing art versus science. This one began with the FT columnist Gillian Tett, who wrote recently that ‘quants and rocket scientists’, who once sought to persuade us that finance could be driven and measured by mathematical models, find themselves all at sea in a new age of volatility. Her theme was pursued in a letter from a former City colleague of mine, Richard Lesmoir-Gordon, pointing out that most banks used to be run by arts graduates equipped with common sense, the ability to assess character and ‘knowledge of how countries and cultures differ’ — so better at dealing with unforeseen events far and wide — but who often failed to understand the risks the young scientists were taking with their capital.
Here we might contrast the late Siegmund Warburg, who saw banking as a high art, with the recently departed Sir Derek Wanless, a brilliant Cambridge mathematician who ran NatWest in the 1990s but never brought its risk portfolio under control and went on to miss the big picture as senior non-exec at Northern Rock during its fatal over-expansion. In short — so this argument goes — softer, broader skills have their merits too and arts education is a counter-cyclical market that’s due for revaluation. Mr Lesmoir-Gordon, incidentally, is both a corporate financier and a meticulous pointillist painter: perhaps he should be drafted onto the new Prudential Regulation Authority.