The Budget and the crisis of overproduction

On 22 June the new British Chancellor of the Exchequer, George Osborne, unveiled his long-awaited austerity budget. It was an extremely nervous budget, only revealing clearly the tip of a mountainous iceberg of disasters to be visited on the working class during the course of the next few years.  There were even one or two small concessions to the poor to create an impression of even-handedness. For the rich, however, there was an immediate cut of corporation tax from 28% to 27%  and it will be further cut in the next three years by one percentage point a year down to 24%.  This is at a time when, as a result of the declined earning of both companies and individuals, the tax income received by the state has declined considerably!  There is to be an increase of Capital Gains Tax from 18% to 28%, a great deal less than the increase to 40% that is paid on income that has actually been earned by hard work.  After the Second World War, which is the last time Britain’s indebtedness was as high as it is now, the rich paid tax of up to 90% on their incomes, and estate duty on large estates went up to 80%.  Now, however, the rich are getting tax CUTS, while as ever the poor and middle income earners are expected to take their “fair share” of the pain, i.e., nearly all of it! Paul Krugman in the New York Times  of 17 June 2010 (‘That ‘30s feeling’) caustically remarked:

In America, many self-described deficit hawks are hypocrites, pure and simple: They’re eager to slash benefits for those most in need, but their concerns about red ink vanish when it comes to tax breaks for the wealthy.  Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion”.

Clearly the British politicians are just as venal as their US counterparts.  In the UK, where we might have seen increases on income tax, especially at the higher end, so that those who could afford to pay more would in fact do so, instead we are to have an increase in VAT, which is well-known to fall more heavily on the poor than on the rich.  In addition, housing benefit is to be capped (saving the Treasury £1.7 billion) at rates that will impose on thousands of destitute families the need to contribute to paying rent or moving to cheaper premises, always assuming that these are available.  It is expected this measure will make a large number of families homeless.  Pensions and benefits are to be indexed to the Consumer Prices Index rather than the Retail Prices Index, which is estimated will cost people £13 billion in lost benefits and smaller public sector pensions over the next five years, according to Treasury estimates. (See Patrick Hosking, ‘”Stealth” switch in prices index will rob pensions and benefits’, The Times, 23 June 2010).

Plus a myriad of other stingy snips will net money to the Treasury that would otherwise have gone to working-class people to meet their needs – the freezing of public sector pay, child benefit, abolition of the health in pregnancy grant, etc., etc.

The real killer, however, will be the cuts in public spending which is to be slashed by no less than 25% – and it is of course the poor who are by far the most reliant on this public spending.

Libraries, adult social services and children’s homes will be closed or cut, major roads will not be repaired, … and university fees raised.

“Economists also predicted that more than 500,000 public sector jobs would be lost in the next four years, with services transferred to the private and voluntary sector [the latter of which can expect no funding!]” (Jill Sherman, ‘500,000 jobs face axe as public spending is cut to shrink deficit’, The Times, 23 June 2010).

Following the trend

It is obvious that there is no way that measures such as these can cure a crisis of overproduction.  The crisis was caused precisely because individuals, corporations and governments together are unable to purchase the mass of products that capitalist enterprises throw onto the market.  Decimation of purchasing power in the manner that the British government is now intending to implement is clearly going to make matters worse.  The only hope that British capitalism has is that by reducing costs of production it can make its British based capitalists more competitive in order to be able to sell more abroad. However, all its competitors are playing the same game.

All of them are engaged in frantically trying to reduce their deficits, not only to avoid sovereign defaults, but also because paying that interest is a huge addition to costs of production that is a burden on competitivity.  In Britain Cameron’s projection is that interest payments on the national debt will be £70 billion a year by 2015 (more than £1,000 per head of population) if nothing is done to cut the deficit, which Cameron translated into schools’n’hospitals forgone, according to Samuel Brittan writing in the Financial Times of 17 June (‘Are these hardships necessary?’).  However, the truth is that Cameron is not as much worried by schools’n’hospitals as he is about profits forgone! As Samuel Brittan points out, the mention of schools’n’hospitals by Cameron is merely a demagogic ploy to try to muster support for his spending cuts among those who are going to suffer from them the most.

Throughout the world drastic spending cuts aimed at the reduction of budget deficits are the order of the day.  We know that Greece is having these cuts imposed on it as the price of intervention by various European countries to ‘save’ it from defaulting on its debts.  Because its debts are so high in relation to its income there is a real danger that Greece will default.  Those who are still prepared to lend to Greece will only do so at very high rates of interest, that make Greek default all the more likely.  Now, however, the Eurozone finance ministers have put together, after considerable delay and bickering, a package of €720 billion to lend to Greece and other faltering European countries to make sure that they don’t default (at least in the next 3 years).  The delay was caused by the failure of the Germans to understand that in rescuing the supposedly profligate Greeks (whose debt has been run up providing early retirement packages and generous pensions not available to hard-working German citizens), they were in fact providing support to good old German (and French) banks who were the Greek government’s biggest creditors. Once the pfennig dropped, however, it was all systems go!

Anyway, Greek public servants are facing actual wage cuts while VAT is going up to 25%.  Whatever public property can be found (railways, utilities) is to be privatized, etc., etc.  Spain and Portugal, which are the next most vulnerable dominoes in the European pack, are following suit.  Spain, for instance, has announced a 5% cut in civil service pay, while ministers are being expected to take a 15% cut, not an example we will see followed any time soon in  the UK we imagine. Germany is proposing to means test unemployment benefits, cut government allowances for new parents, freeze Christmas bonuses for civil servants while cutting some 10,000 civil service jobs. The idea is that contagion from defaulting countries “is like Ebola.  When you realise you have it you have to cut your leg off in order to survive” (to quote the words of Angel Gurría, the head of the OECD, cited by Victor Mallet et al in ‘Greek fire turns to Spanish fever’, Financial Times, 1 May 2010).

The US, which is most concerned that Europe’s contraction in spending is going to put paid to the recovery that until only a few weeks ago the big imperialist powers thought they were going to be able to conjure up through implementing various extremely expensive financial stimuli, has nevertheless surreptitiously been implementing its own cuts. According to David E Sanger and Sewell Chan writing in the New York Times of 8 June (‘Stimulus talks yields to calls to cut deficits’), “The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again.  It is a measure of the mood that Mr Obama on Tuesday hailed an initiative by his administration to cut the budgets of most major government agencies by 5 percent, at a time when conventional theory would call for more government spending to lift the economy”.


It is clear that, like the magician’s nephew, capitalism cannot control the economic forces that it unleashes.  The capitalist economic system itself is forced to exert a downward pressure on the earning capacity of the vast majority of workers, and crisis is reached when, as a result of that downward pressure, a large part of the commodities produced by capitalist enterprises can no longer find a buyer.  At this point a correction takes place.  The weaker capitalist enterprises go out of business, leaving the way clear for those who survive to start making profits again, notwithstanding a temporary increase in unemployment.  The magician’s nephew tried to hold back the correction by causing impoverished persons and individuals to borrow in order to buy, but only succeeded in impoverishing them still further in the long run and aggravating the crisis.  Now, after another bout of feverish lending at the government level, we are back to a retrenchment that will take years of misery to work its way through. The mounting numbers of unemployed, the mounting bankruptcies, the mounting house repossessions will blight the lives of millions; while the contradictions among those competing for market dominance are becoming more and more antagonistic and will surely break out into another world war unless the proletariat is able to intervene to take power and stop it.

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