- Simon Wren-Lewis nicely describes the austerity con (coming soon in extreme form to an Alberta near you):
‘Mediamacro’ is the term I use to describe macroeconomics as it is portrayed in the majority of the media. Mediamacro has a number of general features. It puts much more emphasis than conventional macroeconomics does on the financial markets, and on the views of participants in those markets. It prefers simple stories to more complex analysis. As part of this, it is fond of analogies between governments and individuals, even when those analogies are generally seen to be false by macroeconomists. So after the 2010 election (and to some extent before it) mediamacro had bought with barely a murmur the view that reducing the government deficit was the top priority. It even bought a second story, which was that the previous Labour government had played a large part in creating the deficit problem in the first place. Like all good myths this was based on a half-truth: before the recession Gordon Brown had been a little less prudent than he should have been: he had been too optimistic about tax receipts, and followed a fiscal rule that allowed his progress in reducing debt in the early years of the Labour government to be reversed in later years. But as the chart shows, the impact of this on the deficit was dwarfed by the influence of the recession, and the recession was the result of a global financial crisis. Despite this, mediamacro allowed the myth of Labour profligacy to go unchallenged.- But even in the midst of publicly-induced economic stagnation with glaring human costs, the Cons can always find more money to throw at doomed resource extraction schemes.
The key question, when it comes to Osborne and the coalition, is about motivation. Was the turn to austerity in 2010 an unfortunate mistake caused by an understandable over-reaction to events overseas and an over-optimistic view of the effectiveness of QE? Has the government subsequently refused to acknowledge the mistake simply because, with the help of mediamacro, it thought it could get away with it? The IMF switched to supporting fiscal austerity in 2010 because of its mistaken interpretation of the Eurozone crisis. There are three problems with interpreting Osborne’s behaviour in the same way. First, unlike the IMF, he didn’t support fiscal stimulus even in 2009. Second, public investment was cut back sharply in 2010 and 2011 even though Osborne’s fiscal rule that the current budget must be balanced excludes public investment. Third, he is proposing to renew austerity after the election, even though we remain in a liquidity trap and there are serious risks to the recovery, and despite the fact that there is no sign today (unlike in 2010) of any government funding crisis. It is as if Osborne’s real priority was and still is to cut all forms of government spending, and as if the deficit was, and he hopes will remain, a convenient pretext to achieve that goal. It will be some time before economists settle on a number for the total cost of the austerity mistake, but a conservative estimate would be that, in total, resources worth around 5 per cent of GDP will have been lost for ever by delaying the recovery. That’s about £100 billion, or £1500 for each adult and child in the country.
If any other government department had wasted that amount, there would be a huge outcry from the media. Yet when it comes to macroeconomics, the media seems to play by different rules. It continues to misrepresent economic ideas even though it has access to academic expertise. Why is this?
Of course it is also the case that large sections of the print media have a political agenda. Unfortunately the remaining part, too, often seeks expertise among City economists who have a set of views and interests that do not reflect the profession as a whole. This can lead to a disconnect between macroeconomics as portrayed in the media and the macroeconomics taught in universities. In the case of UK austerity, it has allowed the media to portray the reduction of the government’s budget deficit as the overriding macroeconomic priority, when in reality that policy has done and may continue to do considerable harm.
- Oliver James sees the HSBC tax evasion scandal as just another example of the uber-rich not caring about the rest of us. And asked what he'd do as Prime Minister of the UK, Tony Juniper proposes working toward a more sustainable and more equal society in one fell swoop:
In our fast changing, uncertain and ever more volatile world, I’d seek to redefine what we believe are the best routes to energy and food security. Instead of seeing these aims best pursued through global free markets (which in any event are a myth), I’d focus on building strength at home. This would be achieved by protecting soils and pollinators and by setting the UK on a path toward having a wholly renewable and super efficient energy economy. Policies would deliberately encourage job creation and technological innovation in both these strategic sectors.- Christine Saulnier argues that governments should be preventing payday lenders from exploiting people who lack access to financial services.
I’d treat inequality as one of the gravest and most corrosive threats to our freedom and society. I’d tackle this in part on the back of a "Green New Deal". This would provide economic stimulus and create quality jobs on the back of upgrading the country’s housing stock and building green infrastructure paid for from a new round of quantitative easing and through aggressive tax collection.
- Finally, Monia Mazigh rightly calls out Stephen Harper's attempt to override rationality with baseless fear.