I’ve never been convinced by the idea that a policy of austerity would lead us to economic recovery. This was the approach tried after the 1929 slump (look up the May Report in Wikipedia) and it didn’t work then. The UK is actually coming out of the current slump more slowly than it recovered in the 1930s, and more slowly than the USA with its wicked deficit spending . This is in line with the predictions of Keynesian economics (not terribly fashionable I know, but rather better than those T-shirts featuring Karl Marx saying “I told you this would happen”): if you follow Paul Krugman’s tweets, or New York Times articles, it is all horribly predictable.
The current edition of the New Statesman features a survey of economists who wrote to the press supporting austerity Osborne a couple of years ago. Their current stance is, how to say this delicately, rather more nuanced. They don’t, of course, say “I was wrong”; it’s all “I actually didn’t quite agree, but the subtleties of my approach did not come across at the time”. Oh yeah ? Then why write to the paper saying you do agree ?
It’s plain that (a) there is plenty of work to be done in the UK; our infrastructure needs radical modernisation* (b) there are people that want to do it (c) government borrowing is historically very cheap, and there is no sign of the bond markets taking fright. It’s a good time to borrow and (d) the National Debt is low compared with the 40s, 50s and 60s. It’s so sad that the self-flagellation advocates can’t see this and put together a sensible recovery policy. I think they’re waiting for the magic confidence fairy to return and energise private industry. Well, she will return one day – even Robert Mugabe couldn’t quite kill off an economy – but she would come back a lot quicker if there was a sign of useful activity out there. And the government deficit might fall if tax receipts rose and welfare benefits fell (the Conservatives are currently borrowing more than Labour planned).
Footnote: three days after posting this entry, we learn that the government deficit is bigger than expected. We also learn that the Minister put up to explain things – poor, poor Chloe Smith, savaged on TV in the past – says this proves how important it is to stick to the current policy. An analogy: it’s like finding that a key doesn’t open a lock, but just turning it harder rather than try another.
* I speak as a man who drove from Sheffield to Manchester on Tuesday, crawling between two of Britain’s major urban centres on a single carriageway road through what might (in the absence of Polish artics) be picturesque Peak District villages. A perfect project for regeneration.