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Last week was an awesome warning of where go-it-alone austerity can lead. It produced some brutal evidence of where we end up when we place finance above economy and society. The markets are now betting not just on the break-up of the euro but on the arrival of a new economic dark age. The world economy is edging nearer to the abyss, and policymakers, none more than in Britain, are paralysed by the stupidities of their home-spun economics. Yanis Varoufakis, ex-speechwriter for former Greek prime minister George Papandreou and now an economics professor in the US, said last week: "There is precisely zero chance of austerity working. It is the same as thinking you can escape from gravity by waving your arms up and down."
It could hardly be more sobering. Money has flooded out of Spain, Greece and the peripheral European economies. Signs of the crisis range from Athen's soup kitchens to Spain's crowds of indignados protesting in the streets against austerity and a broken capitalism. Youth unemployment is sky-high. Less visible is the avalanche of money flowing into hoped-for safe havens in the US, Germany and even Britain. The last time the British government could sell government bonds at interest rates as low as today's was in the early 1700s.
George Osborne and his acolytes proclaim this as a triumph of the government's economic policies. They are gravely mistaken. Rather it portends fears that the international economic order may collapse because if so many countries are simultaneously pursuing austerity, where's growth to come from?
Virtually everywhere you look there are signs of a weakening world economy. At home, manufacturing suffered its biggest plunge for three years, and this in an economy already suffering its longest depression since the 19th century. American jobs growth is petering out. Unemployment in Europe averages 11%. Even China witnessed a sharp fall away in factory activity in May.
Yet none of this should be a surprise. We live in the aftermath of one of the biggest financial and intellectual mistakes ever made. For a generation the world, with the London/New York financial axis at its heart, surrendered to the specious theory that lending and financial contracts could grow many times faster than the underlying economy. There was a blind belief that in a free market banks could not make mistakes.