Politics and Economics

The Greeks vote for Syriza. Is this the end of austerity or fantasy economics?

The Greeks voted emphatically for the radical left wing Syriza party who claim they will reject austerity.  The UK Labour party might look wistfully for inspiration from Syriza, reassured by Ipsos Mori polling that shows half of voters in the UK think no more cuts are needed.

This coincides with some 15 Labour MPs led by Michael Meacher and Diane Abbott leaping on the success of Syriza in the Greek elections by demanding that Ed Miliband reject austerity. They released a signed statement aimed at persuading the Labour leader to pledge significant state investment in the economy and jobs, instead of backing swingeing public cuts.

It’s difficult to know if these Labour politicians and voters are being economically illiterate or populist or both.

It reminds me of the worse days of the trade union excesses of the 1970s when they would decisively vote themselves a 40% wage increase and then were scandalised when their “democratic will” was not fulfilled by “management” or the prevailing government. They failed to understand that voting for something didn’t automatically mean it was practical or affordable.

All the Greeks have done in electing Syriza is to vote for an end to austerity. As did the French in 2012. Look where it got them.

These statements avoid the obvious question of how they will pay for the public services and welfare they want and this in turn highlights two of the many problems with socialist economics.

Firstly they believe money comes from taxation, an impersonal and limitless ATM in the sky, rather than the hard earned income of taxpayers. Extra taxation can always come from the “rich” – a vague, nebulous, undefined collection of immoral capitalists who are just queuing up to hand their money over to the exchequer. Somehow they always overestimate their numbers and under-estimate their global mobility. Something the French have learned very quickly.

Secondly they have not grasped the simple fact that if you want to borrow money somebody has to be prepared to lend it to you. The more you owe, the higher the risk of default so the more the lenders charge to cover the extra risk. Eventually the risk becomes so great, because the interest is so high, that lenders will stop lending. The UK’s interest rates are only low because the lenders see a plan to bring spending under control.

Have you noticed that left-wing politicians love applying fancy labels? The group of 15 leftist MPs were given a boost by Peter Hain, the veteran Labour MP and party grandee, who made a separate intervention yesterday that echoed their sentiments. He said “capitalism that dominates today requires far more radical responses than the neoliberal, right-wing orthodoxy of the post banking crisis era could ever provide”. This sounds very grand. Giving contrived labels to things is a trick used by many academics to make a simple subject sound intellectual. Pompous language helps left-wing politicians fool naïve voters that they are thoughtful and clever and know what they are talking about. This is because the simple language “we hope to spend our way out of our catastrophic debt ” is not as convincing.

These statements by Labour’s back benchers is the reason why Labour cannot be trusted with the economy. Labour must now convince the country that they can manage the country’s massively reduced public spending capacity for the foreseeable future. The Labour front bench may believe they can do this, but it is clear that their political paymasters (Unite and the GMB trade unions) and their socialist Labour backbenchers will not let them.

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