As I was about to post this I saw Paul Krugman had (typically!) got there first, but I think I slightly prefer my version so I’ll post it nevertheless.
Once upon a time there was a land governed by a king. The land was productive, with many small firms making all sorts of goods. But recently the land had suffered a mysterious misfortunate: some of the businesses had closed, and some people were looking for work.
The king was a superstitious man. In particular, he believed there were good letters, and bad letters. He thought the letter G was particularly bad. So one day he told his courtiers that he had decided what the problem with his land was. Its ills were caused by owners of firms whose name began with the letter G. They were bringing bad luck to the economy as a whole. So he ordered all firms owned by people whose name began with the letter G to close down.
Now some advised the king against this action. While they did not dispute that G might indeed be an unlucky letter, they felt that closing down any firms while the economy was already weak was not a wise policy. The king was not pleased, and ordered that these advisers be locked up. So the king’s policy began to be implemented.
Now many firms were owned by people whose name began with the letter G, and as the king’s policy was implemented further woe came to his land. The amount produced in the land declined further, and those working for the firms that had been closed became unemployed, and so had less money to spend. But his loyal courtiers proclaimed that this had nothing to do with the king’s order, but was the result of a fall in demand from overseas for the economy’s products. There was some truth in that, because some other countries had chosen to follow the king’s example and also close down firms whose owner’s name began with G.
Unrest in the country grew, and the king became unpopular. His loyal courtiers became concerned that the king could be overthrown. So they quietly slowed down the process of closing down the businesses whose owners names began with G. At the same time, some of those who used to work for firms that the king had ordered closed found work with other firms, and these other firms expanded their output. It is rumoured that some people also changed their name to something not beginning with G, and reopened their old businesses. So the economy began to recover, and output growth was positive again.
So it came to pass that the courtiers now hailed the wisdom of their king. The economy had been purged of the letter G, and was now clearly healthier as a result. The original critics of his policy had been shown to be wrong, and the king doubled their jail terms. Newspapers throughout the land proclaimed their king’s wisdom. Knowing no better, the people reaffirmed their devotion to the king.
At which point the king said that he never much liked the letter H either.
Both versions of this sorry tale are good, and seemingly like a lone voice in the media these days Martin Wolf in the FT has dared to tell the true UK austerity story. However, reading some of the comments below his article there are many evidence-impervious drones who insist that not only has Martin (and therefore Krugman, Van Reenen, Portes and yourself) got it totally wrong, but also that there has in fact been no austerity in the UK over the past 3 years. Very strange given that the government themselves tell us they have been undertaking austerity!ReplyDelete
I wonder Simon if you can provide evidence/data to illustrate the scale of the fiscal consolidation, perhaps in terms of reduction in government spending over the past 3 years?
Keep up the fantastic and much needed informative discourse, as there appears to be an ever decreasing evidence based narrative, analysis and interpretation of economic affairs nowadays.
The letter H? Thought it was I.ReplyDelete
I thought it was tales of the fiscal multiplier that had been banished?ReplyDelete
They have threatened and frightened BBC so much that even they are now reluctant to utter anything which might show the King in a bad light, for fear of banishment.ReplyDelete
Never would His Highness, the Majestic and Royal King shut down anything starting with the letters H, M, R and K.ReplyDelete
My comment echoes one on the NIESR web site. Those who opposed austerity for economic rather than political ends nonetheless failed to mention at the time that it would lead, at some point, to a period of stronger growth. I now wonder whether their opposition was in fact political rather than purely economic - I suppose its difficult to separate the two....ReplyDelete
See one of the first posts I wrote: http://mainlymacro.blogspot.co.uk/2012/02/when-growth-returns-prediction.html. Perhaps the reason that others did not mention it was that it was totally beside the point!Delete