I’ve said several times in various public places during this campaign that the Coalition Government’s economic plan, that it likes to claim has been working very well for the last five years has been doing nothing of the sort. I’ve gone so far as to call it a ‘lie’. This is a very serious accusation that I don’t make lightly. I am in good company in saying this, as you can see in some of these recent things, from economists far more eminent than I. Unfortunately if the same thing is repeated again and again, people start to assume that it must be true, because everyone is saying it.
Nobel Prize-winning economist, Paul Krugman wrote about the UK election in the New York Times in March: “Unfortunately, economic discourse in Britain is dominated by a misleading fixation on budget deficits. Worse, this bogus narrative has infected supposedly objective reporting; media organizations routinely present as fact propositions that are contentious if not just plain wrong.” And later, “What about growth? When the current British government came to power in 2010, it imposed harsh austerity — and the British economy, which had been recovering from the 2008 slump, soon began slumping again. In response, Prime Minister David Cameron’s government backed off, putting plans for further austerity on hold (but without admitting that it was doing any such thing). And growth resumed.
If this counts as a policy success, why not try repeatedly hitting yourself in the face for a few minutes? After all, it will feel great when you stop.”
Robert Skidelsky, former Conservative Party spokesman for Treasury affairs wrote a few days ago in his article ‘Debating the Confidence Fairy’: “The moral of the tale is simple: Austerity in a slump does not work, for the reason that the medieval cure of bleeding a patient never worked: it enfeebles instead of strengthening. Inserting the confidence fairy between the cause and effect of a policy does not change the logic of the policy; it simply obscures the logic for a time. Recovery may come about despite fiscal austerity, but never because of it.”
On his own website he wrote about the Conservative Manifesto: “The Conservatives have continued to spin their familiar yarn of having rescued Britain from ‘Labour’s Great Recession’. This, as they must know, is the mother of all lies. The Great Recession was caused by the banks. Governments, the Labour government included, by bailing out the banks and continuing to spend, stopped the Great Recession from turning into a Great Depression. Yet practically everyone seems to believe that the Great Recession was manufactured by Gordon Brown.”
Simon Wren-Lewis, professor of Economics at Oxford University wrote this month in The New Statesman about The economic consequences of George Osborne: covering up the austerity mistake, from which: “The austerity mistake involves basic macroeconomics. Cutting spending will reduce demand and is not to be undertaken when interest rates cannot be cut to offset its impact. The Conservatives, if elected, plan further sharp austerity in the early years of the next parliament, at a time when interest rates are still expected to be at or near their floor. Whatever your views about the desirable size of the state in the long run, to cut spending when the economy is still vulnerable in this way is to take a huge risk. It is exactly the risk that materialised from 2010, except today there is not even a hint of market pressure to cut the deficit quickly. Being able to cover up the earlier mistake is bad enough. Planning to repeat it is pure folly.”
And remember all those dark warnings from Tories and the media which support them about how the UK is in peril of following in the footsteps of Greece. Wren-Lewis points out: “Unlike eurozone countries, the UK can never “run out of money” and so is not at risk of default.” This of course doesn’t mean we can live lavishly beyond our means, but it’s part of what makes the UK’s budget very different from that of a family or a small business.
While I’m posting links to stuff about economics that’s easy to read, here’s something a bit different from a few years ago: New Road To Serfdom by Michael Hudson published in Harpers magazine in 2006. It’s not about ‘austerity’ but about how the deregulated (under Thatcher and Reagan) financial industry can be very cavalier about how it creates ‘products’ that come back to bite us all. It was recommended to me by Plymouth University economist Neil Smith, who says “one guy I love is Michael Hudson – his New Road to Serfdom gave a perfect description of the last 8 years, except he wrote it in 2006!” on mortgage debt, and how the financial industry has persuaded people that it’s a good thing to take on as much debt as they can afford rather than as much debt as they need.