The Austerity Myth

On the global scale of hackish irritation, the American left’s persistent determination to misdiagnose the reasons behind Britain’s faltering economy cannot be considered the most grievous pundit-crime. Nevertheless, it remains annoying. Here, for instance, is Joe Klein:

Word now comes that Great Britain has slipped back into recession after several years of David Cameron’s austerity experiment. It seems, yet again, that John Maynard Keynes has been proven right. Real Keynesianism–government deficit spending–is essential when economies go bottom up. This can mean more government programs or lower taxes, or a combination of the two. That would seem to be plain vanilla logic, right? But you’d be amazed how many otherwise intelligent people disdain Keynesianism these days–four decades after Richard Nixon said, “We are all Keynesians now.” There’s a reason for that. 

[…] As David Cameron is learning, rather painfully, in times of trouble, government can be the most reliable job creator we have. Oh dear. Is Klein unaware that Britain continues to run a large deficit or does he just prefer to ignore this while using British policy as a stick with which to beat the Republicans on the other side of the Atlantic? As Brother Jones helpfully demonstrated yesterday, David Cameron’s government has barely cut government spending at all. Chart? Here’s the chart:

It’s true, I suppose, that the government could be running even larger deficits. True too that it could have cut taxes (instead of increasing them) as part of a “Dash for Growth” strategy. It is not true, however, that the struggling British economy is in difficulty because the government has adopted a slash-and-burn policy towards government spending.

It is certainly hard to make any case arguing that Cameron and George Osborne are succeeding at present but their failure can scarcely be attributed to austerity measures that have barely been implemented.

For that matter, using the British experience as a kind of proxy for the American argument over government spending is a fool’s mission (or, if you prefer, deliberately deceitful) since the British and American situations are rather different and, indeed, so different that you might even expect people such as Joe Klein to appreciate that fact.

the curious feature of British government policy is that the government has persuaded people that it is following one course when, in fact, it is following quite another. It is a rum confidence trick that, unfortunately, may only have succeeded in depressing confidence. It is true that the government may presently borrow at low rates but its ability to do so is constrained by the fact that the markets assume the government will borrow as little as possible. If Osborne were to change course on that front it seems probable that he would no longer be able to borrow at such low rates. That is, he can only take advantage of these low rates by promising to take as little advantage of them as he can get away with. Here too, as with so much else, his room for manoevre is depressingly limited.