Johnna Montgomerie argues that austerity is made through economic narratives about debt. She explains how the story the UK has adopted ends up preventing the necessary structural reforms needed to revitalise the economy.



Austerity changed the landscape of the UK, but also Europe, since the 2008 economic crisis. Austerity is the new normal and we are getting used to it. No one believed Phillip Hammon’s 2018 claim that austerity was over, and everyone expects an emergency budget the moment the UK leaves the European Union. Austerity has become more than a public policy platform: it is a mood, a depression, a chronic case of financial melancholia. Austerity is, above all, an experiment. This means that its policies are in motion and can be contested, but also that its results and consequences are not yet fully know.

In my research I look at the hidden cost of the austerity-led recovery of the UK economy, and untangle the causes and justifications made to build what is now an unprecedented debt at the national, firm, and household level. I argue that what moral story is told and what remains untold about the crisis is a way of weaponizing ‘debt’ to justify economic decisions that generate inequality. For example, when unconventional monetary policy benefits the top 5% of households, at the same time austerity-induced cuts ravage the bottom 95%. In post-2008 Britain, the narrative constructed articulated a set of ideas that made austerity possible. The need of ending ‘reckless overspending’ (caused by previous Labour governments); the presentation of cuts as the only way to restore fiscal credibility; and welfare reforms as a necessary measure to put an order in the public expenses are the pillars of what has been said to justify harsh intervention.

Economic storytelling involves how economic expertise is used in meaning-making about austerity. In particular, ‘the debt story’ acts to justify austerity in order to maintain financialised debt as a driving force in the economy. Austerity prevents the much-needed structural reforms to the economy by endlessly subsidising the financial services sector which must be ‘paid for’ with cuts to government provisioning. Put simply, there is no alternative to austerity if the objective is to sustain finance-led, debt-driven growth. Austerity will be endless because another financial crisis is always around the corner. Will it be Brexit? A US recession? China has its 2008 moment? Any or all of these are possible outcomes in the next year. The response will be more bailouts for the strategically important financial industries and more austerity for everyone else.

Austerity creates the economic stagnation which cultivates a deeper melancholic aesthetic. Austerity requires re-engineering the role of the state away from providing services, investment, and transfers to households in order to continue to prop-up the financial sector, using high levels of government debt as justification. As the mountain of debt gets bigger, there can be no more government spending or investment in case the same financial institution decides Sterling is over-valued. Yet, government debt acts as a driver of financialisation as well, acting as capital from which banks can lend on private debt to firms and households. What starts as the Zombie Bank becomes a Zombie Financial Sector that requires a subservient state to feed it privatised contracts, government debt as collateral, and artificially low interest rates that fuel a relentless hunt for yield. This is a basic model of financialised growth in the age of austerity.

The economy, the state, and the household are drowning in debt, thus how you use economics to explain which are the ‘good’ and the ‘bad’ debts is important. However, debt-driven growth has generated a wider mood of austerity as a growing proportion of households struggle to manage their own debts and, looking to the future, see only a future of endless debt repayment. The time-trap of debt colonises the UK’s economic future into a debtors’ prison, hoping one day to be released. When the BBC broadcast its newest adaptation of Charles Dicken’s Little Dorrit, the melancholia of 19th century debtors’ prison seemed an eerily familiar mood to contemporary Britain.

Today’s debtors’ prison is walled with legal contracts to service the £1.7 trillion of public debt (which does not include the government debt held on the Bank of England’s balance sheet) and the £1.64 trillion of private debt. This enormous stock of debt must be fed a steady stream of present-day income, flowing from households (through income and taxation) straight into financial markets. Global debt securities markets are many times bigger than global GDP: according to the IMF, global debt reached an all-time high of (USD) $184 trillion in nominal terms, the equivalent of 225% of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than two and a half times the average income per-capita.

This debt must be governed, it must be managed. Therefore, the economic stories you tell about debt – whether it is the national debt, corporate debt, household debt – these are the stories of power. The justification of austerity is that it is necessary to deal with debt. At the same time, austerity is the reason there is so much debt. This endless cycle of credit-fuelled ‘boom’, debt-induced ‘bust’, followed swiftly by a necessary bailout and compulsory austerity.

Breaking away from austerity requires cultivating an alternative story about debt and austerity that brings about a new mood. A hopeful vision of taking an alternative path will bring a better economic future for those currently surviving or suffering from austerity-induced melancholia. The necessary structural reforms away from debt dependent growth are the only viable alternative to boom, bust, bailout, austerity ‘doom loop‘ we are currently stuck in. Just look at Japan: we could be stuck for another 20 years and still see no renewal.

Ending austerity requires more than just a public policy platform, although that would be a good start; it requires a change in the elusive animal spirits of a market society. A shift from austere to effervescent economic policy, and a political message of a hopeful future that is better than the present.

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Note: the above draws on the author’s published work in British Politics.

About the Author

Johnna Montgomerie is Reader in International Political Economy at King’s College London.