Today we are going to talk about crisis and austerity So we are going to talk about crisis in general but mainly the 2008 crisis and what caused it. And then the austerity policies that have followed in different forms in different European countries, mainly, but also North American countries, and how these resemble a lot of the kind of reforms that have been asked by the IMF and other international institutions in the global south for many decades Now, first of all. What is a crisis? What makes something an economic crisis? We have a ‘recession’ right? So instead of having growth in the economy, we have negative growth. So GDP, the Gross Domestic Product goes down rather than up. GDP being what is made in the economy in one year. We have…many crisis are financial crisis, right? So they come from the financial system. That was certainly the case with the 1997 Southern Asian crisis and it was the case in the Argentinian crisis in 2000. Er. It certainly was the case with the 2008 crisis. All crisis are caused by kind of ‘boom and bust. So this goes back to the first crisis The capitalist crisis, which was in tulips in The Netherlands. In the 17th century. which was basically, a boom in the price of tulips so lots of people got in to wanting to sell tulips and then the prices crashed and then there was a big crisis. So, something becomes very profitable, so lots of people get into it… to selling it. And then that deflates the price so that causes the ‘bust’. There is nothing new there right? That has been going on for a long time. So you have this distinction between what happens in the financial system and then how that effects the real economy. Okay, so this crisis in 2008 certainly started in the financial system, it was banks that were in trouble. Er. But then through the bailouts and other means that transferred over to the real economy And that’s when it results in unemployment, in poverty and so on… Those things didn’t happen straight away in 2008 but they have happened in the aftermath. So, then there is the question of whether crisis are unavoidable in capitalism So, up until 2008 there were certainly a lot of people that thought a period of large crises was over. It wasn’t. A way that economists often look at crises, is that they think about it linking to The Impossible Trinity. So, a lot of crises historically have been caused by countries seeking to do all three at once. So, if you think of the period after the second world war before the changes in the 70’s We had fixed exchange rates between countries The dollar was pegged to gold. and all the other currencies around the world were pegged to the dollar. We had independent monetary policies. So, central banks in countries could have their own independent monetary policy we did not have free movement of capital. So, we had capital controls in place. There was more and more capital being moved as part of globalization that we talked about in previous weeks as part of that we have more movement of capital that states struggled to keep control of. Then that was a big cause of the crisis in the 70s. Then the way out of that was to leave the fixed exchange rate, right? It basically broke the exchange rate. So, each country has their own history of a crisis there. Then, what became the norm was to have free movement of capital and to have independent monetary policy but not to have a fixed exchange rate to have floating exchange rates If we think about what happens inside the European Union or rather inside the European Monetary Unions, so in the Euro area. We have fixed exchange rates and we have free movement of capital but countries in the Euro area do not have an independent monetary policy And that has been a problem for countries like Greece, Spain, Italy, Ireland. that would have, had they had the chance would have led a different monetary policy than what the European Central Bank has done in the crisis So, then if we thnk about what actually caused the global financial crisis in 2008 Susan Strange, a very good British political economist, wrote a book in 1986, already, where she warned about Casino Capitalism and what it was doing. A very good film that explains the Casino Capitalism that took place in the lead up to the 2008 crisis is The Big Short, you should watch it. So, mortgage-backed securities which were the cause of the financial crisis are basically… If you get a bunch of mortgages… Home ownership is increasing fast in the U.S, in Spain, in Britain In Spain you have 85% of households who are homeowners In Britain 70%… So, all these mortgages that people are taking out, they are bundled up together. So you have a whole bunch of good mortgages Good customers And then the longer the, erm, this ‘boom’ goes on the more lending these banks want to do. Its important, if you are going to have a rising housing market, that you get, erm, that we get more and more people joining the housing market Home ownership is something that is good to promote But what that means, because at the same time as having an expanding housing market So, more and more people/households becoming homeowners, you also have less job security The job security in general has been going down. So, what that means is that you get people who want to buy properties and who the bank or the system needs, in order to expand the system, needs them to buy properties But they are becoming more and more precarious. So, they are in more and more precarious situations. That means that in these products of mortgage-backed securities, you also have some sub-prime mortgages. Now this becomes a bundle that is traded on the financial market and that’s what they talk about (in the film) But, although the immediate lender that lends the money knows about these risks, right, and these customers obviously pay a higher premium because they are seen as bigger risks when this is traded on financial markets the people, or the investors, trading in it do not know what exactly is in here Then, And then they trade on the risk on these being defaulted So, basically you have these mortgage-backed securities that becomes doing business on the risk when these are traded on financial markets but at the same time, hiding the risk. This is supported by risky lending to more and more precarious borrowers. If this is the problem that causes the crisis and if you think that, you know, its the lending, the irresponsible lending to households that really should not be borrowing that kind of money If you think that these kind of things are the problem that has gone wrong then, what we need to do is to regulate the financial market. So, where there has been a lot of de-regulation what we need to do is to re-regulate And that is largely what happened. That was Obama’s response to it. That was the response of G20, was to increase that regulation much of that regulation has then been removed by Donald Trump’s administration in the U.S But, there are other deeper reasons, that you can see, for why the crisis took place And on of the big ones which has gained a lot of traction in recent years is that actually inequality was a very big cause in itself of the crisis. And that’s not least thanks to Thomas Piketty who wrote this book ‘Capital in the Twenty First Century’ where he looks at a number of countries, at lots of in-depth data basically showing that inequalities have grown globally. This is not a problem in the U.S or just in the U.S or in Europe But its true in China Its true in Japan. Its true ina lot of big economies around the world. So what he then says is that inequality, in a capitalist system, inequality is self-reinforcing Why is it self-reinforcing? Because it makes more sense if you have a lot of money and you have a very unequal society then, if inequality means that there’s a lot of poor people who don’t really have much buying power, much purchasing power, then, it doesn’t make as much sense to invest your money in producing things that they could buy. Because they can’t. Because there is not that demand there in the economy. So, it makes more sense for, if you have a lot of spare cash hanging around, to invest it in erm. rentier, profit-seeking, so, er rent-seeking activities. So, land, housing or speculative investments of different rents, or whatever they may be. And what he also says is that capitalism naturally has tended towards rentierism. So, we have this trend towards global inequality that has always been part of capitalism with the one exception being in the post World War II period So, Pitketty comes to the conclusion that actually the only thing that has ever reversed this was war That is his rather dire assessment of what would need to happen. On the reading list is Stockhammer. Englebert Stockhammer, who also argues that inequality, he very specifically says that inequality caused the global financial crisis. And he says that there are four ways in which that happens. First, grown on the same kind of thinking that Piketty says is that it causes, inequality decreases the demand in the economy. There is less people able to buy stuff, so there is less demand in the economy. And, the people, what happens inequality because there’s not as many people that get rich, as get poor but you have fewer people being rich and more people being poorer, right? The people who would spend the money, who spend all the money they have, are at the bottom. And they have less so therefore there is less demand in the economy this kind of stagnant demand has led countries, he says, to become either debt-led such as the U.S, the UK, Spain… Or export-led, such as Sweden, Germany, er, China. So, countries have come to specialize in either this kind of path dependancy Or having their economies driven by debt Or having their economies driven by export And in the debt-led economies the spiraling household debt has gone out of control, partly to keep up with social consumption norms. Part of what is called in this country ‘keeping up with the Joneses’ So that was happening, leading up to the 2008 crisis But also at the same time as that happening you also have an abundance of money at the top And that, incredible abundance of money then makes the people who have it more likely to engage in risky financial speculation And risky financial speculation obviously makes for the kind of systemic risk that we just saw in the video clip. So, if inequality is the problem well, then its not enough to regulate financial markets. If inequality is the underlying problem that causes crisis then regulation is not going to address that. You need radical redistribution of wealth. Then you have a more Marxist critique of what happened which is that the inequality has increased that’s because of neoliberalism. So, David Harvey would say have… crisis are always re-occurring in Capitalism, they are built into the Capitalist system. Most crisis historically have been of over-production so that there has been too much production of certain goods that has been in a ‘boom’ But, that this crisis now is rather because of over-accumulation, that there is too much money being kept at the top rather than going in to production A version of this is the German Wolfgan Streeck, who has written a couple of books in the last few years. His main argument is basically that Capitalism does not simply provide enough for enough people to sustain it democratically. That it can’t be sustained democratically because its so unequal it does not benefit enough people. So, that we will either see the end of capitalism or the end of democracy. So, he would use that as an argument, you see this why we have the rise of Popularism across so many countries. Because there’s not enough. Capitalism does not provide enough. So, if you go down that line then you become an anti-Capitalist basically. Okay, so, now we are going to talk about austerity. Which has been the major policy response in a lot of countries to the 2008 crisis and has dominated policy-making in many countries, in different ways as we will see. So, first of all, I would just like you to put on Sli:do and tell me what is austerity? What does it mean? Talk to each other if you want… You don’t have to remain silet… Just to talk to each other and remind each other what does austerity mean? For countries? For people? What is it? Yeah, so… we’ve got a load of good answers here to what austerity is. So, yeah, its about reducing the fiscal deficit so the difference between the government expenditure and the income in any given year or time period. Decreasing, cutting down on public spending that is the way that you try to reduce this fiscal deficit that you cut down on public spending Policy saving to reduce debt by government Okay, so that’s almost right. Its not quite debt that we are cutting via austerity But its aiming to cut the debt to GDP ratio We will go into why that is. A misunderstanding of macro economics… Some people certainly say that it is… We will go into that. Spending cuts or tax increases? Yeah, that’s true. It can also be tax increases. Some taxes have been increased. Class warfare is certainly one reading of what austerity is. Fundamentally flawed. That is the er, dominating, in macro economics certainly, and political economy, the dominating reading of what austerity is. So, austerity as a word er, means self-discipline Thrift… Scarcity so, what we are doing When we are in a period of scarcity In the political economy, austerity means, basically, shrinking state expenditure with the stated aim of decreasing the debt-to-GDP ratio. That’s different from decreasing debt. The debt, nobody really, realistically thinks that we can decrease the amount of pounds or dollars that a country, er, owes. But the debt-to-GDP ratio is what we are trying to decrease. So, that is a percentage, before the crisis, a lot of countries had GDP ratio, debt-to-GDP ratio of about 50% and then they were, kind of, bumped to about 90% And some of them have gone a lot higher than that since then. So, the case for austerity is generally led by Conservative politicians Or the Troika, for example of The European Commission The European Central Bank and the IMF Although the IMF has got a lot of people in there who are not to keen on austerity anymore. This is the political case for austerity by one of the most colourful British politicans… Suppose that I were funding an extravagent lifestyle of credit, that my bank was allowing me to hire an expensive sports car, get a mortgage on a huge house and then it stopped lending me the money. At that stage, my quality of life would inevitably change. I could go on as many anti-cuts marches as I liked I could protest and demand growth, not austerity I could call my bank manager, a heartless Tory sociopath and it would still make no difference. I would still owe what I owed. Because austerity is not a choice It’s a reality. Our whole vocabulary here is wrong When we talk about an austere person, we are describing a personality trait. We are talking about someone who is stiff and spartan and frugal. But in the case of the United Kingdom, austerity is not a choice, it is a response to external circumstances. And its the inability to see this that creates what is perhaps, the most irritating three word slogan in the whole of modern politics namely, growth not austerity I mean, honestly comrades, if it were that easy don’t you think we would have all tried it by now? Unfortunately, when, as now, we have a small majority or indeed a hung parliament you find that proficlacy becomes the order of the day. Votes become pricey, pork-barrelling affairs. And each time that a cheque is written you invite twenty new demands. If you can afford a billion pounds for Ulster then you can afford HS2, if you can afford HS2 then you can afford a proper public sector pay rise, and so on and so on. And that I am afraid is the situation that we face as long as this marjority persists, but none of it affects the fundamental economics The United Kingdom is still spending more than it earns to the tune of a billion pounds a week. In that situation, austerity is not a choice austerity is a fact of gravity. So, that then is the case for austerity. If you look at the key to Daniel Hannan’s case here Is that, just like a household would, that state must live within their means. So, we need to tighten our belts. Now, very importantly, no economist would say it like that. But, and we’ll get back to why that is, so that is not the scholarly argument but you would hear, you do hear politicians saying that. Then if you look at what has been used as the scholarly arguments for austerity, there are two main ones and one is based on an article that came out in 2010 that said that a high debt-to-GDP ratio is detrimental…has a detrimental impact on growth. So, they studied a bunch of countries and looked at the effect on a high debt-to-GDP ratio and found that at the line of 90% then it becomes much harder to grow the economy Okay, so that states should try to stay under that 90% barrier And this was at a time when a lot of states’ debt-to-GDP ratios were around 90% or a bit over. Then, you have the expansionary austerity school. A group of Italian scholars that, basically say, that actually again, by looking at what different countries have made, they looked at The Netherlands and Denmark, in the 80s and 90s showing that we can have fiscal adjustment, so we can have austerity. The cutting down on expenditure can be a good way of achieving growth. But, particularly when its combined with tax cuts. So, somebody said earlier that austerity could lead to increased taxes Well, what they are arguing is that actually we need to cut expenditure at the same time as we cut taxes. Okay, and then we can have this kind of expansionary austerity. So, we can have growth even though we are we are cutting expenditure, we have an austerity. Now, in reality we have…most European countries have had some form of austerity since 2010. So, you can put them into two categories. You have Greece, Spain, Ireland, Portugal and Italy that have had troika involvement So the IMF, The European Central Bank and European Commission That has been called, by Liam Stanley, has been called the disciplinary austerity. When it is, to some extent, forced from outside Now some of these countries have had austerity measures enforced on them and some of them have had just involvement in the, like Spain and Ireland mainly reforms to the financial market, but nonetheless the financial system. But they’ve had this kind of external pressure that you can call disciplinary austerity. Then, you have other countries like UK, Netherlands, France, that have had what he called, anticipatory austerity. We are not talking about that its forced from the outside… But its the British government itself that decided to have austerity In the U.S and Canada you also had significant austerity But that particular term, particularly in the U.S has not been used as much. More in Canada. Now then, going on to the critique against austerity and you can see this at different levels One of them you can see as an empirical critique which is basically just looking at what is happenning with austerity and saying its not working. Okay, so austerity has failed to deliver stable, or significant growth, right now. Particularly in Greece… You know Greece is no where near anywhere recovered. Its a transformed country, much for the worse. And with no clear sign of that changing. But rather, that its been a huge radical reform of the Greek state. That’s what austerity has been there. Then you look at this… then scholars have dealt with these particular claims that were made on the previous slide. For example, the 90% debt-to-GDP limit was proved…it was actually proven, although it was doubted by many scholars when that article first came out, it was proven a few years later by a PhD student, I think Cambridge, who showed that it was based on mis-calculations even the basis for that claim itself, was basically wrong. And the authors have admitted as much since. So, there is no magic limit where debt-to-GDP becomes particularly problematic. Nobody would say that it is good to have a high debt compared to GDP but nobody would say that thats something to strive towards but what most economists would say most macro-economists, is that no growth is a lot worse than high debt. So, then what we need to focus on is growth If we think of the relationship between debt and GDP as being the problem, its a lot easy to increase growth rather than decrease debt. Easier to increase GDP than to decrease debt. And therefore it makes more sense… to focus on that. They also critique…theres also a lot of critique against the concept of expansionary austerity and saying that that is based on poor research methods. And that actually when you look at it, you can’t see any cases where you can really say that austerity has led to growth. So, we’re in a situation where a lot of economists that work for the IMF The IMF themselves often express that there has been too much austerity and that its actually been counter-productive and that it has stifled growth. Still the IMF is part of the troika and are also pursuing austerity policies in many parts of the world. So, you can’t say that IMF as an institution is entirely against austerity, but there are certainly a lot of people within it that are and the consensus in macro economic circles is that its not working. So, that’s kind of looking at whats happenning and saying its not working. Then you have the theoretical critique of austerity, that tries to explain that its not just that austerity isn’t working, its that austerity can not work. So, those claims are different. One is just looking and saying, its not working. The other is saying well its not working because it can’t work. And they largely…are largely based on Keynes… Keynesian… You have some of the key authors here who have written about austerity He says that comparing households to states is a ‘fallacy of composition’ So, states and households do not have the same role in the economy. Households can’t make money to start with. The state can make money. In a state…everything that … money goes around in a state… In a household, once you’ve spent it, you’ve spent it. But in a GDP, the same pound coin is counted several times in a year. But, erm, you can’t really compare those two things So, austerity is not working because it can’t because it misunderstands the role of the state as an engine in the economy which is what Mark Blyth says. And that is because it doesn’t understand the multiplier effect. In the national economy I’m the state, I decide that teachers are going to get a pay rise now, because teachers don’t make a huge amount of money they tend to spend all the money that they have So, I’m paying you as a teacher, money, you then go out and spend that money So already that money had been spent twice Same money has been spent twice. That enables Patrick here to go and have some home improvements so that he builds, gets a builder in to build something in his house and that then gives another… so that money goes around another time, and so on. At some point the money leaves the economy And it depends on the economy of the country, how… how strong the multiplier effect is. So, in, obviously… if you then go and buy something off Amazon with that money then probably it leaves the system or something… So, at some point it finishes, but here is a multiplier effect there that one pound that the State spends becomes more than one pound in the economy. So, what Keynes said, and what Keynisians say is that time for austerity, so to cut state spending is the ‘boom’, when things are going well not the ‘bust’, because when we have a crisis, when we need growth that’s what we need for the State to spend more money and to take on more debt, Then, they also say that we can think of a lot of… when we talk about a lot of inequality being a problem that is what a lot of Keynisians say that inequality was what largely caused the crisis So, austerity… worsens inequalities, it deepens inequalities and therefore it basically does exactly the wrong thing. Austerity, its big in Europe its getting big here. Everyone and the Prime MInster has been talking about it. But what is it? The common sense on how to pay for the massive increase in public debt caused by the financial crisis. Mostly through the slashing of government services, first you take on debt, then you pay it off. Sounds simple right? Unfortunately its never that simple because austerity confused virtue with vice. Let me explain why. Now that supposedly the worst of the crisis is over there’s debt everywhere…credit cards, mortgages, government debt. This is the part you know. But we need to remember how we got here. Two years ago, the world’s financial system exploded! The crisis blew a two trillion dollar hole in financial space time. And collectively the rich governments of the world, spent, lent or guaranteed between five and fifty percent of their country’s annual product, saving the banks. Given this, you might think that a period of austerity is a good idea. But to see why its not, you have to think about the world as a series of balance sheets… I know! Stay with me… Whether you are a person, a household, a firm or a State, you have assets and liabilities. A balance sheet. Before the financial crisis in 2008, everyone took on a lot of debt. Back then it made sense for many of us to take on debt. For example, the bottom 40 percent of the U.S income distribution hasn’t had a real wage increase since 1979 really that’s true. Corporates, especially banks did the same. But they did it to make money rather than to pay the bills. Its called ‘leverage’ which is pretty much debt seen from a different perspective. Levering up is a little like going double or nothing in Black Jack. If you’ve taken on debt from a mortgage, you hope your house will increase in value. If you think there is a high chance the value will increase you might go double or nothing and take on a bigger mortgage. But like Black Jack there is always a risk of losing. So the banks created mountains of debt. They levered up 20, 30 times It was like they had pushed in all their Black Jack chips. But each chip was just an ‘I Owe You’, so when it all went wrong, governments felt like they had to step in and bail them out because they had become too big to fail. This is where the balance sheet problem comes in and why the common sense of austerity is not so simple. If you’re levered up in debt and your assets lose value. Your house or your housing derivatives portfolio, if you’re a bank Your balance sheet as a whole is now under water, when this happens whether you are a corporate treasurer or a single mum, if you’ve got cash coming in, you will want to pay down the debt. to bring your balance sheet above water, rather then spend money. Which means no one is spending. And that’s when the government comes in. If the whole private sector is de-leveraging (paying back debt) Then goverment automatically levers up to compensate. Tax revenue falls so the deficit increases. Unemployment benefits kick in and public consumption takes the place of private consumption Now make no mistake, the problem is debt There is too much of it across the board and we need to claim those public and those private balance sheets. But all these pieces are connected. If the public sector claims its balance sheet at the same time as the private sector then the whole economy craters. Its called the Fallacy of Composition. What’s good for any one household or firm or even State is a disaster if we all try it at once. So why then have most governments of the world decided to do exactly this? And all at the same time? Well, remember that two trillion dollar hole in space time? The answer is that someone has to pay for it. And no one, especially the banks, wants to. So governments have to either increase taxes…difficult… Or slash services…easier… Especially when the policy has the common centering of virtue about it…Austerity The pain after the party. But here’s the kicker. The hangover of austerity is not really going to be felt the same way across the income distribution. Earlier this year, the forum for the governments for the world’s most economically-developed states the group of twenty (g20), called for Growth Friendly Fiscal Consolidation. Much like a unicorn with a bag of magic salt its a nice idea but its pretty much [rude word] Precisely because this consolidation doesn’t hit everyone in the same way. Remember those folks in the bottom 40 percent of the income distribution that didn’t really benefit from the financial boom? All they got was debt and the illusion of prosperity. They are the ones that actually use government services. Those services that are about to be so virtuously consolidated. Those at the top end of the income distribution, those who made the mess in the first place, don’t. So where does this common sense virtue of austerity leave us? It leaves us in a cycle where those at the bottom end of the income distribution pay for those at the top with the same stagnant and squewed incomes that now buy less, in a more unequal and unstable economy Theres a term for this. Class politics. And it usually ends badly. This common sense of austerity, of reducing public debt all at once through slashing services, involves a question of equity. Who pays and who doesn’t? Those who made this mess, won’t. While those who already paid for it through the bailout will pay again through austerity. This is why austerity is not common sense. Its a nonsense. And a dangerous one at that. Okay, so the fact that if everybody cuts spending at once then the growth is not going to come from anywhere and you have a lot through austerity that we have when government are trying to cut down on their debt-to-GDP ratio that ends up with households taking on more debt In most of these countries, household debt has increased quite dramatically in austerity. Also from a Keynisian perspective it makes a lot more sense that if we are going to pump in money to the economy it makes a lot more sense to pump in money at the bottom of the income ladder. Why? Because the multiplier effect. The multiplier effect is a lot stronger if you give money to people who are going to spend it, than if you give money to people who are not going to spend it. Basically, if we want to get the economy going we want to do it in a way that decreases inequality by pumping that money in at the bottom and that’s quite different from what has happened. Then, there is the political critique against austerity, right? This is a theoretical economic critique. You have a political critique that Mark Bright goes into as well But it says that the crisis was caused by Wall Street. So it was cuased by Wall Street. By mortgage-backed securities. By the trade in these securities, the sub-prime crisis… So, it was caused by Wall Street, so its simply wrong to make those worst off in society pay the price for it. Its just morally wrong. Then, what Wolfgang Streeck would argue is that its divisive. That causing this level of poverty and inequality is divisive And it causes social unrest which explains the political crisis in many countries. And that its morally wrong to cause this much disposession. So, today it was released that one third of British children live in poverty One third of children in Britain live in poverty. Those came out today. So you have the increase of child poverty so that that kind of dispossesion is just wrong. Then, that comes on to the idea that the cost of austerity is unequal it hits the already disadvantaged groups harder and I’ll come into that and talk about the concept of ‘urban austerity’ in a second. Then you have, thinking about a lot of scholars think of austerity as fundamentally neo-liberal, right? So that Jamie Peck calls it an intensification of neoliberal restructuring strategies. So a lot of things… that were already happening have been intensified. Philip Mirowski came out with a famous book…in…a few years ago now that says ‘never let a serious crisis go to waste’ So he draws on thinking by Milton Freeman that talks about how we can use crisis to make the previously impossible things politically possible, and that austerity represents that. So that austerity is actually something that a lot of people have wanted… involves cuts… that a lot of politicians or political forces have wanted to do for a long time anyway. And the crisis enabled that through austerity. So in that sense they would ask ‘is austerity actually meant to solve the crisis?’ which it isn’t doing… Or is it rather used to in order to restructure the State… Change the way that the State works? And in that sense is austerity meant to to create growth, which it isn’t, or is it meant to protect the profits? The crisis happened because the State bailed out the banks So that’s how the debt-to-GDP ratio increased by so much in such a short space of time was because the banks were bailed out. The profits of the financial sectors were protected. So, is that what austerity aims towards and an article by Greene and Lavery show growing on this… that if we want to produce growth, we should pump in money at the bottom of the income ladder Well, what’s happened… the pumping that has happened through quantitative easing has gone straight into the financial sector. And who benefits from the financial sector? Well they show that in this country its about the top 5 percent of UK households benefit when the financial industry grows. And they show that the shares of the banks in the financial sector grew after each round of quantitative easing in this country. Then Jamie Peck developed an idea of austerity urbanism where it basically says that its in cities where austerity is felt more than anywhere else. It is here we have the housing slump, so a crash in housing prices, and evictions that follow from that. We also have… it is in cities… where people are more reliant on public services. He also says that cities are home to many preferred political targets so we can think of the ‘undeserving poor’. Austerity has politically enabled different in different countries. In Spain for example, it was just like saying we’ve got to do this. It’s not that we want to do this, its just that we have to do these cuts because we are forced to by outside forces But in Britain. when austerity was brought in, it was… there was a lot of talk about ‘benefit cheats’ and that people were living off benefits so they didn’t have to work and so on So a lot of talking about ‘undeserving poor’ and they tend to be more concentrated in cities. and so are the minorties and marginalised population. For Peck, cities are where austerity bites. He also says then that it is city governments that deliver austerity So a lot of the spending cuts come down to local governments to do In that sense, austerity is downloaded to cities. We have, again in this country, in the UK We have the idea of localism being driven by the coalition govenment and the Conversative government That, for Jamie Peck becomes a way of sort of, passing the buck down. So we talk about it in terms of local democracy but with much less money to do anything so it becomes a kind of pretext. And the effect is that it deepens inequality between cities. Because some cities are large, they have different sources of income, different kinds of access to credit and a different kind of leverage to cope better with a crisis. Or on their own rather. Or different abilities to cope with less money from the State Whereas other cities have fallen behind and that’s very visible in the U.S. where you have cities like Detroit going bankrupt. Whilst other cities like Los Angeles, with a different kind of economy are doing alright, not suffering as much from that kind of thing and you have the same thing in Britain with some cities being much worse off. And Bristol actually doing fine in many ways. But obviously in comparison but obviously if you look at inequality within Bristol that has increased dramatically. But Bristol is better positioned than some other cities in the country. But certainly that it also drives… it deepens inequalities within cities because state support is cut whilst finance and other assets grow. Housing prices have been increasing so the people who are plugged in to the housing market have kind of, in total been doing alright. Whereas the people who are not, haven’t. So in Britain you have largely grown inequalities. between home owners and non home owners and one study by Cunningham and Savage in London show that its people who work in business and finance and legal, have been winners and other sectors have lost out and they show that looking at where these people live in different parts of London. Now, we’re going to have a little quiz Telephones out please and go into [name of quiz app] Right, I’m going to start now Which bank’s downfall became a symbol of the 2007-8 crisis? Yes, most of you got it right. It was the Lehman Brothers. Which country has the lowest home ownership rate in the EU? Trick question, right? We think of Germany as a rich country… We think of home owners as rich. But Germany has the lowest rate of home ownership in the EU. They are an export led economy. If you have a higher rate of home ownership, there’s more debt in the economy. So, you have much more consumer debt. That’s not the way that Germany wants to go down. About a 40% home ownership rate in Germany. The highest home ownership in the EU is Romania UK had about 70% but that has been going down since the crisis, probably closer to 60% now. But Germany has the lowest home ownership rate and that is connected to the way their economy works, its part of it. Jack, where’s Jack? Well done Jack! Try to keep it up. How much do Chinese households save as a percentage of disposable income? These are the stock images offered by the app so… [laughter] A lot basically… Chinese households save a lot. 35 percent of disposable income goes into savings. How much do British households save as a percentage of their disposable income? Its actually less than zero percent. Its minus 0.9 percent of disposable income is saved by the average British household. So, that obviously is unequal, right? I mean, the people at the top obviously save a lot more. Where the people on the bottom go a lot more minus. We can see that its built on a different kind of economy. This is a debt led economy in Britain. Whereas Chinese economy is very much export led. Simon…well done. Which G7 country has the highest debt-to-GDP ratio? Tricky one obviously…Japan by about a mile. Its like 250 percent to GDP, or something like that… Its sky high! Its been going up and up and up since the Asian crisis in 1997. Italy is also very high. The UK, the U.S. all of these countries have a high debt-to-GDP ratio Is Japan export led? I’m no expert on the Japanese economy but I think that’s its an export led economy If we look, for example, at the amount of household savings that Japan has They would also save a lot per household. Its not as much as the Chinese but no, its more of an export led economy But at the same time, the industry has been in trouble since the crisis in ’97 and has never recovered. They are basically staying in the high debt-to-GDP situation So, more than double the rate of the UK. What percentage of Greek youths are unemployed? Most of you right there…43 percent still. Hence a lot of talk about a ‘lost generation’ Not just in Greece but in a lot of Southern Europe. Very high unemployment. It was much higher at the height of the crisis but, partly because a lot of young Greeks have moved to other parts of Europe. It is now lower. But still 43 percent. Simon…Still in the lead… Which country has the lowest unemployment rate? Not many of you got that right? UK has a very low unemployment rate. You wouldn’t think it..but… The UK has a lot of under employment So people are not working as much as they want. People do have a lot of in-work poverty in the UK, which you wouldn’t have in Sweden. But in terms of actually registered unemployed people, the UK is lower than all of these countries. It’s narrow…the lead has narrowed… Who is the managing director of the IMF? Its indeed Christine Lagarde. At the recent international summit there was a good picture of all the world leaders and it was Theresa May, Christine Lagarde were I think the… and Angela Merkel were the only women in there. Who wrote ‘Austerity: The History of a Dangerous Idea’? Have you payed attention basically… So, yeah Mark Blythe. That is probably the most cited book and famous book about austerity… He was the guy who was talking earlier. Who is not part of the Troika? Yes, its the World Bank so, Troika is European Central Bank, the International Monetary Fund and European Commission. The World Bank is not. JS won it. I will get you a prize after … A bar of chocolate or something like that… Well done. That is all for today. I’m more than happy to take questions outside Thank you.