How austerity could help our generation

I am of the view that our economic situation in Britain is pretty dire; probably worse than the picture being painted by our increasingly pessimistic government. As this report by city brokerage Tullett Prebon outlines, the government's plans to eradicate the budget deficit by 2016, rely on rates of growth seen under the last administration of c.2.8%. This level of growth came on the back of a debt-fuelled spending boom in construction, real estate and government spending. Since the financiers of these boom - the government, financial institutions and individuals - are in no longer in a position to borrow, it would probably be fair to say we cannot rely on growth in these sectors. Without them, as argued in the report, trend growth levels were probably more like 1.4% in the boom years, meaning the OBR is probably being optimistic in its 2016 targets. Given this context, austerity, or variations on austerity, remain prudent options whilst we sort our finances out. Yet the left refuses to accept this notion (apart from maybe these guys) - wedded to an idea of growing our way out of this situation. Instead I believe the left need to start thinking seriously about a Britain facing declining living standards, and how they can embrace austerity for the benefit of my generation.

Opportunity 1: Future generations do not have to suffer

Let me start by saying I am not denying that people are suffering. Austerity has already had many serious consequences for young people - youth long-term unemployment has risen by a staggering 874% since 2000. Ideally there would be no need for austerity. In a globalised, open, free-market economy, economic cycles are a fact of life. However, the state can buffer individuals from changes to a world that they have little control over. Yet we have not had this. The fact that no credible, fundable expansionary policy was available at the end of the New Labour era is a critical and damning failure. Simply put, whilst the global economic crisis was not New Labour's fault, the need to resort to austerity is. This period of austerity should not be forgotten - our public sector workers and young people should be protected from worst of economic cycles in the future.  We can do this by promising less, actually adhering to our fiscal "golden" rules and anti-cyclical fiscal policy and developing state capitalist institutions that can lend when we need them to (e.g. in the form of a Green Investment Bank or a National Investment Bank such as Germany's KfW).

Opportunity 2: This is our chance to tackle consumerism

The Labour opposition congratulate themselves on coining the term "the squeezed middle" - hard working, middle England who are "suffering" from inflation, wage freezes and cuts in public spending. But we have to be careful; careful to distinguish what for some is a radical life change, but for the majority is nothing more than a squeeze on their consumerist way of life, and not on their well-being, happiness or life satisfaction. I say this often, but will repeat it again. Ours is a consumption lead, debt-fuelled economy. The big elephant in the room in Western societies is that they are no happier despite rising levels of income since WWII. Research shows that 

• people who have materialist values are no happier
• the riots appear to have strong links to consumerism 
• people who engage in civic activities, volunteering and spending more time with friends and family are happier 
• inequality may make people unhappier and 
• the effect of unemployment on happiness is greater than the impact from loss of income. 

In my mind, these conclusions are the bedrock of the left, but often get put aside by the "important" issues of growth and standards of living. Austerity is our chance to tackle these entrenched ideologies.

Further, well-being is not the only reason to tackle consumerism. Investment is ultimately delayed consumption. If no-one is delaying consumption, there is no money to invest. One group who does delay consumption are the savers in the East (India, China, Middle East) who ultimately invest in the UK. If they start to consume at similar levels to us, our sources of funding will dry up. We need a sustainable source of people delaying consumption or we will not be able to invest in our future. What's more with our rates of consumption today we might not have a future - planetary resources place a hard constraint on infinite consumption.

This is an opportunity for the discussion on happiness to start (people look inward in perceived tougher times). The gradual demonization of GDP growth as a measure of society’s progress is an important step in implementing progressive policy for future generations. What's more the policy ideas are already out there, below I present a few ideas:

• a progressive consumption tax
•  bans on advertising,
• proper paternal leave,
• no-opt out of the 48 hour working week,
• statutory sabaticals  
• reform of government cost-benefit analysis and bolstering of the social value bill

Opportunity 3: Let's build policy around our squeezed generation that now, not later

Our defence of the squeezed middle seems futile – the issue is on-going and not limited to this period of austerity. Our generation will, or already does, faces issues of:

• student loan repayments
• increasing pension costs,
• increased costs of caring for our elderly,
• shortages of housing stock
• global inflation - to name but a few sources: increasing wages in the BRICs, geo-political led fossil fuel price volatility, resource depletion, new demand-led inflation from the growing middle classes of the BRICs
• mass redundancy of the low-skilled due to outsourcing
• increased competition in high-skilled jobs due to rise of the middle class in the BRICs
• green taxes - and worse still if climate change does occur, this squeeze will be even more dramatic
• the cost of renewing our ageing infrastructure

The left need to get used to this and think of policy that is useful. Policy needs to pursue happiness not consumerist growth – only a squeeze on well-being being should be of concern for policy makers. We need to sow the seeds of bringing back low-skilled jobs (e.g. digital, low-tech manufacturing, urban agriculture, the green new deal) that mean we will be less at the mercy of a globalisation squeeze. Finally, we need to create sustainable housing and infrastructure with an emphasis on national and local self-sufficiency.

Opportunity 4: Let's start the debate on the big trade-offs

New Labour dumbed down the idea of a trade-offs in achieving a more equal society – austerity has put it back on the agenda. We were lead to believe that we could re-distribute without pain because we could grow forever and cheap finance could always act as a bridge if we were profligate. This was a lie - you cannot sustainably use debt to fund current expenditure. Yet on the left we do believe in an equitable re-distribution of income. Now is the time we need to talk openly and forcefully about how this is funded, whether this be via higher universal tax rates, progressive consumption taxes, taxes as market corrections or taxes on wealth.

Opportunity 5: Let's reform the state to better meet our objectives in this changing world

Austerity and cuts undermine the big state - but the large state is not necessarily the bed fellow of the left. Let’s assume the left believes in the progress of the worst off - the poorest, the unhappiest - and collective actions to ease individual misfortune - shocks that impact wealth and happiness. These principles do not have to be delivered by the state, though still noting the desire to fund such action via progressive, central means. In the light of austerity, the next generation has the ability to do things more effectively. Many reforms are more to do with effective governance and local action e.g. co-operatives, mutuals, "big society" - all movements that the left can identify with. Action can also benefit from an emphasis on upstream prevention (e.g. fighting obesity) rather than the safety net (e.g. treating diabetes, heart disease). Social impact bonds are structured on the basis on upstream projects that lead to downstream savings. At the same time, this does not prevent a strong state providing strong market intervention, national infrastructure and a buffer to the global economic cycle.

Opportunity 6: Let's think about where efficiency is welcome

Austerity has lead us to think long and hard about areas in which we can achieve efficiency gains - these changes have the impact of being both expansionary and lasting for generations. Let us use this time to embrace efficiency where it useful. Examples in action today include the Green New Deal, upstream prevention, smart meters for our energy networks, and procurement reform e.g. alternatives to expensive PFI schemes. At the same time, there has to be a real acknowledgement on where efficiency is not welcome - is there such thing as more efficient patient care? Or more efficient social work? The only way the left can lead these debates is by engaging in the first place.

Many in our generation will face scars from this period of austerity, from long-term unemployment, a slower economy and reduced key public services. However, it should be seen as an opportunity for the left to re-invigorate rather than protest. In my mind, at the heart of this movement would be:

1. Prudent, anti-cyclical future fiscal policy (admitting economic cycles are a fact)
2. Bringing well-being to the forefront of policymaking
3. Planning for the squeeze by investing in a self-sufficient, sustainable economy
4. A serious conversation about how to fund re-distribution
5. Using austerity to reform the central state machine
6. Using austerity to push through efficiency, but only where this is humane