The Great Neoliberal Lie

Nazi propaganda minister Josef Goebells

is credited with the creation of the

big lie strategy.

The Great Neoliberal Lie is one of the most egregious modern day examples of the big lie propaganda technique in action. The Nazi propaganda minister Joseph Goebbels defined the big lie technique as when one lies, one should lie big, and stick to it and that if you tell a lie big enough and keep repeating it, people will eventually come to believe it .

The Great Neoliberal Lie comes up repeatedly in any kind of political discourse about the causes and consequences of the 2008 global economic meltdown. Orthodox neoliberals such as small-state conservatives, corporatists and free-marketeers use the Great Neoliberal Lie to defend their favoured policies of cutting state spending on infrastructure, healthcare, education and welfare in the name of austerity. The lie goes along the lines of:

The state has spent too much on infrastructure, healthcare, education and welfare and has borrowed excessively to pay for it, creating the budget deficit and increasing the national debt. The only way to to reduce the deficit is to cut government spending. The first fault in the theory is that the economic crisis and subsequent rises in government debts were not caused by excessive government borrowing, they were caused by reckless lending in the financial sector.

To take the UK as an example, between 1997 and 2008 the UK national debt actually fell from 41.92% of GDP to 36.25%. During the same period British banks lent ever increasing amounts to less credit worthy customers in the form of 3.5x and 4.5x mortgages, banks’ investments in household debt rose from around 60% of GDP to above 90%, and their leverage ratios increased as ever growing numbers of people chose to take out loans in order to invest in the property market rather than invest in savings or private pensions.

Several of the worst affected British banks even chose to invest billions in buying up sub-prime mortgage-backed debt securities such as Collateralised Debt Obligations (they were AAA rated but anyone diligent enough to actually check what they’re buying would have seen that CDOs were worthless neoliberal economic diarrhea). Much of this reckless lending was facilitated by successive government deregulations of the financial sector and seemingly deliberate government policies aimed at fuelling house price inflation.

Anyone attempting to maintain that the economic crisis and the huge rises in government debts were caused by excessive government borrowing as opposed to reckless lending in the financial sector and unsustainable property price inflation, is either lacking sufficient economic knowledge to understand the causes of the crisis or is deliberately attempting to obfuscate the actual causes of the crisis by switching cause and effect.

The next problem with the Great Neoliberal Lie can be found through closer examination of what actually constitutes government debt.