I have been on holiday somewhere with understandably limited internet access, so I missed this post from assistant editor of the Daily Telegraph, Jeremy Warner. Forget most of the text, which comments on some recent posts by Paul Krugman and myself, and head to the last two paragraphs. The penultimate starts with this:
“In the end, you are either a big-state person, or a small-state person, and what big-state people hate about austerity is that its primary purpose is to shrink the size of government spending.”
And the final paragraph starts:
“The bottom line is that you can only really make serious inroads into the size of the state during an economic crisis. This may be pro-cyclical, but there is never any appetite for it in the good times; it can only be done in the bad.”
There is the old joke that there are just two kinds of people in the world, those who think there are two kinds of people and those who don't. The trouble with following an ideology is that you tend to make this ‘with us or against us’ division on what is seen as fundamental. In these terms I am a non-person, because I have no idea what the ideal size of the state should be (although I suspect within an ideology that defines itself by the virtues of a small state that makes me ‘one of them’). For me the intellectual case against austerity has nothing to do with the size of the state. The key argument I and others are making for those who want a smaller state is that it is folly to try to achieve it in a recession when interest rates are at the zero lower bound.
The problem for ‘small state people’ like Warner is that “there is never any appetite for it in the good times”. I can only interpret this as meaning that in good times people appear to be quite content with the size of the state they have, and will not elect a government which aims to reduce the size of the state. So why are things different in a crisis? Do people’s preferences over the size of the state relative to GDP really change when we are in recession? Or could it be that in the current crisis people are told that government debt is ‘out of control’, and that a reduction in government spending is necessary to bring the nation’s finances to order. Cuts in government spending are being justified by the need to reduce debt and not because of the virtues of a small state.
Reducing the size of the state temporarily to reduce debt, and reducing it permanently are rather different things. There is apparently no appetite for the latter, so why not push for the former as a way of achieving the latter? As a political ruse it sounds very clever, and it is currently working in the Eurozone, US and UK. But it remains a ruse: a giant deception played on electorates across the globe.
So no wonder Jeremy Warner is tired of the austerity debate. As he says “if you attempt to rip big chunks of government demand out of the economy, it is bound to have negative short term consequences.” Seeing the government you support trying to avoid making this admission must be painful. It would have been much more honest to say that the loss of output was worth it for the long term benefits that a small state would (allegedly) bring, but that is not the argument that governments are making – instead it was all about a ‘debt crisis’. This becomes even more painful when the intellectual basis for the debt crisis argument falls away.
Surely this deception is scandalous. The Telegraph played a major role in the MPs expenses affair. Many UK MPs had been overinflating their expenses because they believed their salaries were unjustifiably low because the public never had the appetite to increase them. So the end justified the means. The Telegraph quite rightly exposed this practice, and those MPs were held to account. Yet in financial terms the cost of the austerity deception is infinitely greater. To some the end (a smaller state) justifies both the cost (percentages of output lost) and the means (telling people it is all about a debt crisis). Yet it involves deceiving electorates around the world, which is why no government politician is ever going to be as honest as Jeremy Warner has been.