Writing in the Guardian, Nobel-winning economist Paul Krugman analyses the last five years of British austerity, using other developed nations in the EU and elsewhere as a benchmark for the growth we could have had — it’s not a pretty picture.
The Conservatives’ ideological commitment to austerity, and their belief in the Confidence Fairy who convinces businesses to spend the economy into health, has acted as a kind of fog in the British debate, obscuring the reality of other countries, where the economic crisis was met with spending, not cuts, and where recovery was faster and more robust. More importantly, other countries recoveries came without the venomous cruelty towards poor, disabled and vulnerable people.
They never could have accomplished it without help from Labour, whose ranks have been colonised with Blairite neoliberals who think the future of Britain belongs to the financial sector and not workers — who would rather see our economy based on selling luxury flats to autocrat war-criminals to use as safe deposit boxes in the sky than an economy based on industry and honest work.
As Oxford’s Simon Wren-Lewis noted, on the very same day that the Centre for Macroeconomics revealed that the great majority of British economists disagree with the proposition that austerity is good for growth, the Telegraph published on its front page a letter from 100 business leaders declaring the opposite. Why does big business love austerity and hate Keynesian economics? After all, you might expect corporate leaders to want policies that produce strong sales and hence strong profits.
I’ve already suggested one answer: scare talk about debt and deficits is often used as a cover for a very different agenda, namely an attempt to reduce the overall size of government and especially spending on social insurance. This has been transparently obvious in the United States, where many supposed deficit-reduction plans just happen to include sharp cuts in tax rates on corporations and the wealthy even as they take away healthcare and nutritional aid for the poor. But it’s also a fairly obvious motivation in the UK, if not so crudely expressed. The “primary purpose” of austerity, the Telegraph admitted in 2013, “is to shrink the size of government spending” – or, as Cameron put it in a speech later that year, to make the state “leaner … not just now, but permanently”.
Beyond that lies a point made most strongly in the US by Mike Konczal of the Roosevelt Institute: business interests dislike Keynesian economics because it threatens their political bargaining power. Business leaders love the idea that the health of the economy depends on confidence, which in turn – or so they argue – requires making them happy. In the US there were, until the recent takeoff in job growth, many speeches and opinion pieces arguing that President Obama’s anti-business rhetoric – which only existed in the right’s imagination, but never mind – was holding back recovery. The message was clear: don’t criticise big business, or the economy will suffer.
But this kind of argument loses its force if one acknowledges that job creation can be achieved through deliberate policy, that deficit spending, not buttering up business leaders, is the way to revive a depressed economy. So business interests are strongly inclined to reject standard macroeconomics and insist that boosting confidence – which is to say, keeping them happy – is the only way to go.
Still, all these motivations are the same in the United States as they are in Britain. Why are the US’s austerians on the run, while Britain’s still rule the debate?
It has been astonishing, from a US perspective, to witness the limpness of Labour’s response to the austerity push. Britain’s opposition has been amazingly willing to accept claims that budget deficits are the biggest economic issue facing the nation, and has made hardly any effort to challenge the extremely dubious proposition that fiscal policy under Blair and Brown was deeply irresponsible – or even the nonsensical proposition that this supposed fiscal irresponsibility caused the crisis of 2008-2009.
The case for cuts was a lie. Why does Britain still believe it? [Paul Krugman/The Guardian]