A New Age of Austerity

Across the road from where I live in South West England, some 40 new houses are being built. For most of the past year all was hustle and bustle, as workmen laboured hard to get the job done. But not anymore. The building site is now eerily quiet. The company building these homes ran out of cash.

This national building company went into receivership with debts of £60 million, and the jobs of close to 4,000 employees were put at risk. Over half the company's work comes from the public sector, which is now in marked retreat in the face of the Coalition Government's attempts to rein in public spending.

Monetary Woes

What has happened on our doorstep is but one small example of a much larger malaise. The United Kingdom, mired in a deep recession and overwhelmed by its debts, is in deep trouble. It all began with a collapse in the housing market back in 2007 due to speculative excesses. Since then, many people have lost their homes and many businesses have failed.

The headline figures are truly shocking: the national debt is £960 billion (68 percent of GDP) and rising fast. Over the 5-year life of the present parliament, the interest alone on U.K. debts will total upwards of £263 billion and—despite planning to reduce overall debts by some half-a-trillion pounds—the national debt will still be 70 percent of GDP in 2015. One wonders if such huge debts can ever be repaid.

In its strategy of debt reduction, the government has committed itself to austerity—to tax rises and spending cuts that together spell hard times to come: a sharp rise in unemployment, reduction in welfare payments, a fall in standard of living, and endless scope for social unrest. Efforts to stimulate the economy have included reducing interest rates almost to zero—but, though this helps the cost of borrowing, it has also reduced the value of pensions and savings. The government bailed out banks to the tune of billions of pounds, and printed some £200 billion "ex nihilo" (out of nothing) in a strategy called Quantitative Easing (QE) in an attempt to soak up government debt and get the banks to lend to business once more ("The world economy: Desperate measures," The Guardian, November 5, 2010). Yet many banks stubbornly refused to lend to those who most needed it. Important parts of the economy remain stuck in the doldrums, so more QE is set for the coming year, should it be needed.

With all this new money sloshing around the system, some fear it will stoke the fires of inflation. Others fear the opposite—that all the cutbacks and extra taxes will choke demand and will push the economy back into recession. Some economists and commentators seriously doubt the efficacy of QE, saying it will merely make matters worse, while others assert that all these measures are wrongheaded, good only for ensuring that the capitalist system will see an even more spectacular collapse ahead.

Difficult and Dangerous Times

Bank of England governor Mervyn King has acknowledged the severity of the problem. Speaking on the eve of last November's G20 meeting, which brought together finance ministers and central bank governors from 20 of the world's most powerful economies, he gave a strong warning. "Nations must identify a path to shrink trade deficit and bring down surpluses or face even more 'difficult and dangerous' times ahead, said the Bank of England Governor. 'We are very much in the position that we need to demonstrate now that every country is determined to work together to a joint mutual resolution of these imbalances… If we don't do that, then I fear that the next 12 months will be an even more difficult and dangerous period than the one we've been through'" ("Mervyn King urges G20 leaders to agree over trade row," London Daily Telegraph, November 11, 2010). He warned that U.K. consumers could expect to be hit by a sharp rise in the cost of living over the following months.

Of course, Britain is also tied financially to other European Union nations, such as Ireland—and, to a lesser extent, Spain, Portugal, Greece and Italy, which are even worse off. Increasingly, these troubles are causing observers to question whether the EU can survive in its present form. And it is not just the EU that is suffering; in one way or another, virtually all nations have been sucked into a worldwide economic crisis accompanied by austerity and pain.

Moreover, it is sobering to consider that this massive worldwide recession could have been avoided. A very few far-sighted economists saw it coming. Oxford-educated Fred Harrison, ridiculed as a "Prophet of Doom" in the early years of this century, is now widely credited for predicting—as early as 1997—the economic boom and bust that first brought us the "housing bubble" and then the implosion of the financial markets. But Harrison, and the few others who gave similar warnings, went unheeded.

Also unheeded was the biblical perspective. Long-time Tomorrow's World readers know that the Bible identifies key measures (see Leviticus 25) that would go a long way to resolving the recurring boom/bust cycles of modern capitalism. These measures relate especially to the land, to the disadvantaged—and to the problem of debt.

The Year of Release

God decreed for His people a system in which all families would be able to own land, and to retain it across the generations. It set strict limits in place against land speculation. How? In ancient Israel, every 50th year was designated as a Year of Jubilee—during which people could return to their possessions and family (vv. 10–13, 39–43, 47–55), and debts would be cancelled (vv. 23–28, 31–34). In this system, if people were in trouble, their wealthier neighbors could not exploit them, but had an obligation to help them and not profit from their misery (vv. 35–38).

Tragedies could still befall a family. But even if property had to be sold, or a worker had to become another's servant, God's statutes established the right to redeem what had been lost, at a prorated cost based on the time remaining before the next Jubilee (vv. 50–52). Even if redemption were not possible, the land would eventually be restored to its owner in the Year of Jubilee.

By contrast, in our present system, debts tend to grow larger than the ability to pay, such that once people are in debt, they often find themselves in a vicious cycle in which their debt grows larger even while they become less and less able to marshal the resources to pay down the debt. Many workers end up as little more than "wage slaves"—unable to provide for their families with dignity, forever one paycheck away from total ruin.

A time is soon coming when Jesus Christ will return to the earth to establish the Kingdom of God. At that time, all nations will finally experience the blessings of living by God's humane and practical statutes. Despite periodic calls for debt relief, the likelihood of any present government applying the Jubilee principle is rather remote ("Time for a jubilee," The Guardian, April 23, 2009). In economics, as in many other areas of life, our society systematically disregards and ignores the principles God has provided for our benefit. The result—as the U.K. is now experiencing firsthand—is eventually, inevitably, crisis. God speed the day when Christ returns to establish His Millennial rule, and the days of austerity are past.