The austerity myth
Fraser Nelson 11:41am
CoffeeHousers may remember an odd New York Times editorial recently where they tried to blame the evaporation of British economic growth on
austerity. Perhaps the newspapers’s famed fact-checkers had taken the day off, because the slightest piece of research would have exposed the premises of the piece as bunkum. This morning,
the ONS has produced monthly public finance figures, showing current spending is still rising in Britain. But first, let’s get to
the New York Times editorial:
Had the New York Times consulted the actual data, it would find out that austerity has barely been tried. Yes, some government departments are making cuts – albeit two years later than most households and companies did. But the below chart shows central government current spending, divided by months:"Greece, which has been forced into induced recession by misguided European Union creditors, Britain has inflicted this harmful quack cure on itself… Austerity was a deliberate ideological choice by Prime Minister David Cameron’s ruling coalition of Conservatives and Liberal Democrats, elected 17 months ago. It has failed and can be expected to keep failing"
So in the last 12 months, the UK government current spending totaled £613.5bn – the highest figure in British history. If this is austerity, I’d hate to see profligacy. So where are the “drastic public spending cuts” which have apparently pushed new employment? In the imagination of the New York Times oped writers.
And while we’re at it, here’s another NYT assertion:
Is that so? The below chart shows the change in private sector jobs, public sector jobs – and the black line shows the net change in jobs:“The government has kept its promise to slash public-sector jobs — more than 100,000 have been lost in recent months. But its deficit-reduction policies have failed to revive the business confidence that was supposed to spur private-sector hiring.”
So extra private jobs have offset public sector job losses. Given the trajectory of earlier British recession recoveries, there is every reason to believe private sector will take up the slack. It just can't be dismissed as ideology. Future growth is evaporating, but confidence has been hit by the return of inflation - a factor seldom mentioned by the deficit deniers.
What news of the two Eurozone countries that have genuinely applied austerity: Ireland and Estonia? Ireland’s economy is now growing at twice the pace of Britain, and its borrowing rates have returned to pre-crisis levels. Estonia, which slashed governent jobs and pay and pensions, is celebrating second quarter GDP growth of 8 per cent.
The only sentence of that NYT editorial that I’d agree with is that “The real world is a lot more complicated” than the world of political and economic dogma. Economics is never straightforward. You can’t predict the future, there are too many variables. Recoveries come in zig zags, never linear, and Ireland outpacing us is not difficult - the Bonsai tree in my kitchen is growing faster than the British economy. I’m not saying that austerity is always good, nor that debt-financed state-spending is always bad. Both can play their part.
But the British experience certainly does not fit the ideological simplicity of the New York Times editorial. The paper, of course, has an agenda: its columnist, Paul Krugman, is an ally of Gordon Brown and believed that Labour would have enacted his neo-Keynsian agenda over here. But Krugman should take heart. George Osborne’s bark is much worse than his bite. Total spending cuts are just 1 percentage point a year more than Alistair Darling's published plans.
We are all learning from the trajectory of this recession and the recovery. But I have a hunch that, when Cameron comes to fight the next election, he’ll find the countries which bit the bullet and frontloaded the pain – Ireland, Iceland, Estonia – in far better shape than a Britain which decided to adopt the language of austerity but not really enact it.
Previous
HJ
October 21st, 2011 11:59am Report this commentNot many people this side of the pond read the NY Times, of course.
What really should be corrected is the BBC's coverage which talks about nothing but cuts without ever presenting the actual figures. The Guardian too.
Nickle
October 21st, 2011 12:11pm Report this commentSo public sector jobs down.
Public sector spending up.
Just what the heck are they spending the money on?
There isn't a huge change in unemployment, so its not benefits.
Pettros
October 21st, 2011 12:12pm Report this commentTis true.
the Coalitions frightening austerity narrative has ruined the uk. At least Darling would have tried to pretend nothing was wrong, hence not damaging consumer confidence whilst undertaking almost identical cuts to Osborne.
Hugo Chav
October 21st, 2011 12:18pm Report this commentFraser,
~USA: recession coming.
~Europe: recession coming.
~China: hard landing coming.
~UK: depression coming.
Probably by this time next year the BoE will be directly financing the deficit, for if they keep soaking up gilts they will destroy the pension and savings industry.
We've got a suckers rally in the stock market.
America is best placed because they are the reserve currency, they can inact financial repression and get away with it, they will benefit from the oncoming Chinese deflation as it will reflate their consumers.
The UK will benefit from lower commodity deflation in 2012 but the Yanks are taking their pain with house prices resetting, whilst our elite do all they can to prop them up, so like you intimate we will become a Zombieconomy.
Here's a nice tasty thought: did the FED do QE2 to accelerate the blowing up of the Chinese economy?
~China: deflation.
~USA: reflation.
Rhoda Klapp
October 21st, 2011 12:37pm Report this commentThere will be no growth before confidence. There will be no confidence while there is doubt and fear about the future. For all of us, the doubt and fear are real and justified. For some of us, just fear, there is no doubt, pensions stolen, jobs insecure, costs rising.
We have to wait it out. A dose of actual austerity would not hurt. I've been saying for years, it seems like, that it is stupid of the tories to take the flak of the 'cuts' while not actually implementing them and thus missing any chance of benefits. It's all taking a long time, and a delayed recovery will not be seen as a tory achievement. In the meanwhile, the govt is teaching us that they cannot be trusted. Once you have lost trust you cannot easily get it back.
The only thing necessary for success is to stop doing stupid things. Spending yourself further into debt is a stupid thing. Cheating the elctorate is a stupid thing. Runnig the govt on a basis of getting through the week and never mind the next, that's a stupid thing too.
Oh, expecting to find economic wisdom in the NYT, that's pretty stupid too.
Bumpkin
October 21st, 2011 12:46pm Report this commentNickle - Good question, I can only think it is Public Service redundacy payments that are using all the cash. An explanation is indeed called for.
whatawaste
October 21st, 2011 12:51pm Report this commentNickle an example:
Opposite me in a council estate in Bucks is a family of five on benefits and the adults are in no hurry to look for work. They asked for and got a new patio laid in the back garden. At first the council just offered materials but the male cited Health & Safety, so Connaught sent round three workmen who did the job in a week a month ago.
When such vanity spending is still going on I cannot see any cuts ever being implemented.
PS Where is Eric Pickles? Has he been silenced by No. 10 because he was getting too much publicity?
daniel maris
October 21st, 2011 12:57pm Report this commentFraser,
You seem not to have learned the first lesson of politics - or economics for that matter: perceptions matter.
Osborne went out of his way to frighten the British public into austerity, to condition them for the cuts. But in doing so he terrified probably a third of the workforce into thinking they were about to lose their jobs. It was a daft way to go about things. A public sector recruitment freeze would have achieved the desired results without the angst.
Secondly stable expenditure does not equal no service cuts. Service and benefit cuts will also tend to cut into people's disposable income and spread economic gloom.
The economic fear and gloom has translated into lower demand which has blocked the recovery.
So Osborne has achieved the remarkable double of keeping public expenditure high but also stymying economic recovery.
Adrian Sells
October 21st, 2011 1:07pm Report this commentRhoda - Hear, hear!
Not much to add save that the future looks grim: "austerity" will be judged a failure at the next election (despite never having been tried), and the quack alternatives will lead us inexorably towards a Greek-style death spiral.
HJ
October 21st, 2011 1:08pm Report this commentSome are asking how come public sector spending is rising when they are cutting jobs.
There are several reasons (in no particular order):
- increasing debt interest payments
- higher pay (most public sector annual pay awards have been frozen and recruitment slowed drastically, but within the existing workforce, there are many seniority/experience increments being applied)
- Higher social security payments
- price inflation of goods and services purchased by the public sector (e.g. energy prices).
So it's not particularly surprising, although the public sector could do a lot more to tackle these
Big Apple
October 21st, 2011 1:17pm Report this commentThose of us living in New York know that the NYT editorial team are cheerleaders for Obama and that is the real motivation behind the article. The logic seems to be: the UK approach hasn't worked after a year so they should change track; meanwhile Obama's approach hasn't worked in three years so he should stay the course and give us more of the same medicine that lost us our AAA credit rating!
Oh - and since when did we look for fact checking from the NYT?
Adrian Sells
October 21st, 2011 1:21pm Report this commentShould have added that it was a good piece to start with, Fraser. These points cannot be made often enough.
Two more minor thoughts - I think that the NYT has an agenda beyond merely its association with Krugman and debt-financed state spending is always bad when the existing debt is already as high as ours. Add the qualification and then we have acceptable dogma.
SJH
October 21st, 2011 1:40pm Report this commentIt's the New Yorker that's famed for its fact checkers.
The NYT has a different relationship with facts.
perdix
October 21st, 2011 2:22pm Report this commentThe NYT article had a comment from an American living in the UK. He did not agree with their perspective.
The Government likes to make a noise about the "cuts" so that the markets won't charge us a higher interest rate.
TomTom
October 21st, 2011 4:59pm Report this commentThe Gray Lady has no reputation for truth. Jayson Blair knows that ! It is a propaganda sheet for Krugman and his ilke. Osborne however is incompetent; he cannot control Spending and lets Mitchell spend what hasn't even been saved. We all pay another £585 billion in taxes by 2014 to find Osborne has spent it all.
This Government is headed for the rocks and is busy looking for icebergs
Hugo Chav
October 21st, 2011 5:33pm Report this commentDavid Murrin:
"You end up with courageous leadership in expansion."
"You end up with grey leadership in decline."
I think Cameron and Osborne are cowards who are content to manage decline. They are putting their own political careers before the country.
I feel deep animosity when I see their pictures on the net, if they appear on telly I switch over.
I think as the economy continues to sink in Stagflation that more people will start to wake up that these guys are amateurs who who have half baked solutions to a grave crisis. Living standards will continue to ratchet down and protests will grow, the national mood will become a depression.
Denial-->Anger-->Bargaining-->Depression-->Acceptance.
We still have a long way to go on the cycle.
The only way is down.
All they've got is money printing to keep the ponzi from collapsing:
"For the past 60 years, most governments in the developed world pursued variants of the same economic strategy: trying to minimize the cost of capital for the corporate sector by subsidizing the financial sector and using the taxes on the higher profits to fund ever more generous spending promises. The result was to turn the state into a giant insurance operation, underwriting tail-risks across the economy, protecting people from the consequences of economic mistakes or social misfortune."
Simon Nixon
Mark Redwood
October 25th, 2011 11:47pm Report this commentSo there hasn't been any austerity yet? Oh really. Let me see.
Last year Mr. Osborne went on endlessly about how we would end up like Greece. He then went on to tell 6 million people in public services (20% of the workforce)that some of them might be losing their jobs. I wonder why consumer demand is depressed?
The LA that I work for reacted predictably to the upcoming fiscal squeeze. They instituted a recruitment freeze. In Oct 2010 I had a look at internal vacancies in the sector I work in, there were precisely zero. They also stopped renewing contracts. At 2010/2011 year end my LA increased their reserves by 80% of the planned cuts for 2011/2012. They are still continuing with the planned 8% cut.
In January/February this year, the City Council my friend works for made 20% of their staff redundant. In June he joked that there would be no-one left over 55 working for the council. Now in October there is no-one over 55 working for the council, they have all taken early retirement.
I am sure that the LA I work for, and the city council my friend works for are not the only ones to take this action. Austerity started happening long before April 2011. The government might have been giving them the money, but I think you will find they weren't spending it.
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