So, it’s all austerity then:
In fact, the roots of Britain’s poor economic performance are older and deeper than Brexit. Though many bad decisions undoubtedly contributed, one central cause was the way David Cameron and George Osborne gratuitously embraced fiscal austerity when they came to power after the global financial crisis.
At the time, this looked like an obvious macroeconomic error; more than a decade later, it has become a social and political catastrophe.
That’s the claim.
Textbook economics tells us that when unemployment is high and inflation is low, governments should try to stimulate demand with reduced interest rates and fiscal deficits. Interest cuts were not an option because rates were already close to zero, so the indicated policy was fiscal stimulus.
And, well, no.
While Britain had low borrowing costs like the US, its government was not divided. The Cameron executive could have chosen to maintain spending. Why did it turn to austerity?
That word maintain there. So, at least we know we’ve not got that rhetorical technique - austerity is less spending than I think should happen. So, was there a cut in public spending?
No, there wasn’t. There was the blow out of the actual crisis then a gentle decline - but the decline was back to maintenance of the previous level of spending.
OK, we could say that’s because the measure there is as a percentage of GDP. But it’s also true in cash terms:
If austerity is being defined as less than maintenance of spending then we didn’t have austerity.
The bottom line is that there was no pressing economic need to slash spending in the face of high unemployment.
What slash of spending? Pre-disaster spending was 40% of GDP. A decade later is was back all the way down to 40% of GDP.
Sociology partly explains the Conservative embrace of austerity. But there was also political calculation. Denunciations of debt and deficits often go hand in hand with demands for smaller government, in particular a shrunken welfare state. In effect, politicians whose real goal is to move policy to the right exploit fear of deficits to push an agenda that would be deeply unpopular if stated openly. The Oxford economist Simon Wren-Lewis calls this the “deficit deceit” hypothesis. The deceit aspect is especially obvious in the US, where Republican leaders routinely denounce deficits while pushing for budget-busting tax cuts. But there is every reason to believe that the same kind of cynicism played an important role in UK austerity.
But they’ve not cut the state!
The issue is, I think, this:
Sociology? I used to talk about the push for austerity being led by Very Serious People (a term I borrowed from the blogger Duncan Black). This was not really a joke: if you spend any time consorting with members of the global policy elite, you realise that many of them are driven primarily by the desire to appear “serious”. In economic terms, this usually means pushing policies that will cause significant hardship – to other people, of course.
The obsession with perceived seriousness reflects peer pressure, but in some ways also reflects personal careerism.
Sociology, yes. We’ve had 14 years of shrieking about Tory cuts. But there haven’t been any as the above charts show. But the shrieking is what is heard across the Atlantic - by Very Serious People. So, the explanation is given for the effects of something that did not, in fact, actually happen. Krugman wouldn’t do this about the US - he’d go and look up the numbers then provide an explanation that was at least consistent with those numbers. Instead we’re getting handwavey over what he thinks - because this is what he’s heard, not investigated - happened.
Consider the NHS. I am clearly not an expert on the system, and I am sure that the NHS’s problems have multiple causes. But it is obvious to an outsider that direct public provision of healthcare, while it has major advantages, creates a special form of political vulnerability.
Compare the NHS with single-payer systems – including Medicare, which serves older Americans – in which the government pays the bills but does not employ the doctors or operate the hospitals. An attempt to save money by underfunding Medicare would provoke an immediate public outcry – in fact, false rumours of such a move created an outcry in 2010. But a government can underfund the NHS for years before the consequences become obvious to voters, and by that time the crisis can be very hard to fix.
Note that’s *real terms increases*.
Please do note, Krugman’s a very bright man and an excellent economist. I would be very interested in reading an analysis by him of the past couple of decades of the British economy. But I’d be interested in reading one that applies to the actual British economy we had, not one that is based upon the stories he’s heard from Very Serious People.
It's just another variation on "polispeak", where "cut" actually means "reduced increase".
Didn't continue spending like drunken ~~sailors~~ politicians == austerity. Right.