Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 19 November 2013

Why no public fury over austerity?

Janan Ganesh has an article in the FT today that made me so cross I just have to write about it, even though I should probably let it pass. The theme of the article is how mature the British have been in accepting austerity. To quote: “For countries menaced by the symbiosis of economic suffering and political turmoil, Britain has lessons to impart.”

Of course I see it rather differently. Austerity is either a major technical error, or a political con. According to very conservative estimates from the OBR, it has already cost around 5% of UK GDP. That is a huge amount of money to waste: resources that wanted to be used to produce goods and income that everyone could enjoy, but which have been kept idle as a result of government action. Of course this cost has not been spread evenly, and has been much greater for some.

If this was just my personal view, or the view of a cranky minority, then there is not much more to be said. But instead it is the view you will find in the economic textbooks, and I suspect among the majority of macroeconomists. So given this, the fact that the policy has been accepted with little protest is not something to be commended (unless you are in the business of manipulating opinion), but a major problem. It is a huge failure for good government, and our democratic system. In fact you see similar failings elsewhere. Austerity as a policy has not been seriously challenged in Europe among mainstream parties, and even in the US I think it would be fair to say that views both within the Democratic Party and from the President have been mixed.

So how can Ganesh have completely the opposite view: that the British have shown “impressive calm” in taking their medicine with little protest, and that the lack of any passionate public debate about austerity in the UK is somehow a virtue? I can think of three reasons, none of which is very flattering.

1) That the “elite dialogue” that did take place on austerity is just so much intellectual hand wringing, and that the public know better what the real score is. I might not be surprised if a government politician took that line, but you would expect that a journalist working at the FT, and previously at the Economist, would know better.

2) That his admiration for George Osborne has distorted his view of the real world. Or, to put it slightly more kindly, if you spend your time talking to people who think austerity is inevitable, you begin to believe the propaganda.

3) That he is trying to analyse how the Conservatives have got away with the con of achieving a smaller state by fueling a panic over debt, without of course admitting that that is what he is doing.

Yet whichever of these is the case, the article seems to miss two obvious points. Could it be that the reason there is not a passionate public debate in the UK about austerity is that there is no one to lead that debate? When the political class, of which he is a member, view austerity as inevitable, is it any wonder that the public takes a similar view (particularly when it is dressed up in terms of household economics). He acknowledges that the trade union movement has been vocal about austerity, but does not examine why this voice is largely ignored by the UK media.

There is also no discussion about how popular anger against the impact of austerity may still be there, but that in the absence of any public debate on the policy, it is manifested in other ways. He writes that “Britain remains gloriously free of a serious far right or far left”, which of course is a put down of UKIP. But although Ganesh may not find UKIP serious, Cameron certainly takes UKIP seriously, and has geared his policy on Europe and immigration with them in mind. Perhaps he sees the current obsession in the media (and government) about welfare cheats and benefit tourists as totally unconnected with the unemployment and cuts in living standards that austerity has helped bring about. (For some serious analysis on these issues, see Alan de Bromhead, Barry Eichengreen and Kevin O’Rourke here.)

But none of that was what made me so cross reading the article. Instead it was its juxtaposition with something that I heard about 4 days ago. A reader of my blog, a retired teacher of A level economics and a LibDem member, is about to give a talk on austerity related themes. The features writer on a local newspaper was interested, and spent an hour interviewing him, later writing 750 words. The article was spiked by the editor, because it was controversial and critical of the government. Perhaps the editor was also showing the “impressive calm” which so pleases Mr. Ganesh. 


  1. Really good thanks.

  2. "and even in the US I think it would be fair to say that views both within the Democratic Party and from the President have been mixed."

    As an American I agree with this. After the Republican Party took control of the House in 2010, the President made a disastrous deal with them in an effort at compromise. This was the "sequester" which took a hatchet to discretionary spending in the budget. Democrats went along with their leader but now everyone considers it a huge mistake.

    Here is an interesting piece on the current state of play:

    The growing economy and the severity of the austerity have combined to bring down the deficit to where it's no longer an issue. Hopefully the rhetoric will change soon. From the piece:

    "The declining deficit reflects economic growth as well as the spending cuts and tax increases that Mr. Obama and Congress previously agreed to. It is not expected to begin climbing again until about 2018, as more baby boomers draw from Medicare, Medicaid and Social Security. With the unemployment rate stuck above 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs. "

  3. Lots of people admire the way Brits tolerate misery. Mustn't grumble. The Dunkirk spirit etc.

  4. Simon, Tell your A level teacher to send his article to the Northern Echo (my local North East paper). They publish anything from the views of wicked “far right” BNP members to fully paid up members of the loony left. We Geordies are a lot more broad minded and civilised than you southerners:-)

  5. Maybe the reason that the public are relaxed about austerity is that they intuit that it isn't really austerity. UK Government spending today is 107% of the level in 2008, while in places like Greece and Ireland, it is more like 80% of 2008 levels.

    Another reason is that your claim of 5% loss of GDP, even if true, isn't something an ordinary member of the public experiences directly, even if they are affected by it indirectly. Instead, what the public experience directly are things like unemployment, which has been moderated, especially compared to what they read about in Europe, and income levels that, while being compressed, are not at levels of real pain. Again, when you read about people living on less than a thousand euros a month in Greece, it puts things in perspective.

    All that aside, I think that Janan Ganesh makes a very good point about national character. The British can be roused, but usually over some issue they perceive as involving injustice. Shared "austerity" today isn't going to drive the British to "fury" any more than very real austerity in the Fifties, and even more during the Second World War, did.

    The British that I know take a quiet pride in anything they see as "doing their bit", and I think we should be grateful about that. I can think of Labour leaders who would have been lynched in more excitable societies.

    1. Hi Jon
      With respect, your comment perhaps illustrates a key reason why so many people in the UK are so accepting of this governments austerity measures - they aren't clear what it really is, how it should be properly quantified/measured, or the true impact of it.
      There are many people who say as you have above that "it isn't really austerity", citing the rising Government expenditure (G) since 2008.
      But this is a basic mistake, since changes in G alone are no accurate indicator of austerity - one reason being that it includes transfer payments (unemployment benefits etc) which since 2008 have risen substantially, thus inflating G and disguising the cuts in other areas of G which most definately have taken place (such as a 40% reduction in public sector capital spending, and as the OBR indicates, between 2009-10 and 2011-12 taxes went up by more than 1 percent of GDP, while public investment fell by 1.7 percent of GDP).
      In fact,the rise in G you note is really evidence of the self-defeating nature of austerity - as it can actually cause the budget deficit to worsen (thanks to the consequent rise in unemployment), resulting in the government borrowing more, not less.
      As Simon Wren-Lewis in a previous blog explains, austerity is best indicated "by the 'cyclically adjusted primary deficit'. Both IMF and OECD estimates show substantial austerity." See link below for the actual figures which illustrate this and the reductions in G.

      The IMF described the UKs policy as a "large and frontloaded" fiscal consolidation, which has though eased up in the past year (thankfully!) as they realised their error of cutting investment spending so savagely. But now they have turned their cuts onto transfer payments, further impoverishing millions when they need assistance the most.

    2. "your claim of 5% loss of GDP, even if true..." This 'claim' was in fact made by the OBR, and given results of other similar studies is actually viewed as an underestimate of the loss to UK GDP. Was there a particular reason why you might think it not to be true?

      "unemployment, which has been moderated,"
      Yes, but due to the huge surge in the number of people 'underemployed' hour contracts etc - effectively 'the working poor', with increasing numbers of both the unemployed and the employed having to rely on charity and food-banks - and in 21st century Britain.
      Whilst certain European countries have fared much worse as you state, they simply can't be used as a comparator to illustrate the supposed mildness of UK austerity. The greater severity of Europe's austerity doesn't mean that the UK hasn't been bad - both have been terrible, just Europe's has been more so.

      "and income levels that, while being compressed, are not at levels of real pain"
      Again, similar to above point, but surely one of the greatest falls in real incomes in the EU (only Greece, Portugal and Holland's fell more) since 2010, and the longest decline in real wages since 1870 in the UK, not to mention the overall fall in living standards - the greatest for decades, has been extremely painful for millions of Britons, and no less so because they are not at Greek levels.
      Unfortunately, perhaps largely due to public misperceptions, misunderstanding and fallacies peddled on a daily basis not only by politicians (of all parties) but across the UK media, British people have been duped into "doing their bit", not properly appreciating the true nature, cost and above all the folly of such a heavily front-loaded austerity programme implemented under false pretences. Afterall its not really about government debt - the debt is the pretext for the ideological pursuit of a much smaller state.
      (Any ideas why they equate small states with economic success, given that decades of evidence shows us that many countries with larger states than the UKs often perform much better economically and enjoy higher living standards, lower poverty levels, less crime, less inequality etc...?

      Apologies for the lengthy reply.
      Kind regards...

  6. This comment has been removed by a blog administrator.

  7. Why no public fury over austerity?
    Answer is simple. Macro economist are the new sociologists, nobody takes them serious anymore.

    The message is too complicated for Average Joe so you need credibility to sell it. Waisted in a minute but takes decades to acquire.

  8. Your point on unions' failure to gain traction for their views is worth pondering. Presumably- and there must be surveys on this- with unions now being largely confined to the public sector, where they are believed to have better pay, more generous pensions and softer working conditions, most peoples' experience of them is confined to when their "industrial" action inconveniences the wider public. Bob Crow at RMT in London, teachers' strikes forcing a scramble for childcare etc. So- if we outside the public sector love them not we are hardly likely to see their views as other than an effort to defend their sectional interests.

  9. Janan Ganesh is one of Andrew Neil's panel on the BBC. Neil was promoted just after the economic crisis, given the BBC's midday Sunday politics show in place of John Sopel.

    I see that Linda Yueh, once of Oxford and then Bloomberg, has now replaced J P Morgan bound Stephanie Flanders, although I don't believe the latter had a cheque signed off by Marcus Agius, once of Barclays and the BBC.

    Flanders had earlier on the BBC written a blog post in which she said that Larry Summers, her ex-tutor, had 'let the cat out of the bag' on Radio Four by describing the current economic crisis as a 'liquidity trap', a term she never again used. This was a cat, seemingly, with only one life.

    Her BBC successor, Linda Yueh, co-authored 'Macroeconomics' with Graeme Chamberlin (2006), a book I have not read. But Yueh had already appeared on the BBC News 24 in 2009 as Dr Linda Yueh of University of Oxford to say that "interest rates will have to rise at some point." It's not a book I'm rushing to for insight.

    And that's how Ganesh thinks he's normal, because in his social world he very much is.

  10. We're watching you mate!

  11. Bread & Circuses -- or as its known in the US, McDonalds and the NFL

  12. " Could it be that the reason there is not a passionate public debate in the UK about austerity is that there is no one to lead that debate"

    Almost certainly an important factor, given that the current bunch of Labour leaders appear to have no strong convictions about anything and the spine of jellyfish.

  13. I agree with the comments that there is a serious disconnect between the political class and its conversation and the general public. But this was also very much there during the Blair years - over a decade of hubris (not just Iraq, but an overly laissez faire approach to financial regulation and eastern European immigration), and much resulting distrust. Persistently high levels of youth and other particular unemployment needs to be directly tackled (and I am not sure ending austerity policies is enough). With respect to immigration, it is not benefit tourism that gets people concerned; it is a perception of high rates of uncontrolled immigration in the context of high unemployment and ridiculously low wages for some occupations in high cost places.

  14. I very much concur with your point about the view of trade unions. British media, more so even than American media, have completely dismissed trade unions as a voice from the past that can spout nothing but self-interested neo-Marxism. Unions around Europe surely carry some of the blame for the disappearance of their voice from public debate. The problem is, as you point out: who represents the wage earners anymore in the public sphere? The answer is: no-one really. Either unions need to modernize to attract service economy employees in the private sector, or something else needs come up and take their place in very energetic fashion. If not, it's austerity for us, more and ever more for the 1 percent....

    1. Well said. It needs to be shown time and again that the mountain of wealth of the "one percent" is a mountain of evidence for the need to revive union power to restore some balance to the economy and and responsiveness in people's lives. Unions will need more of their own media to make the case, backed with reason and evidence, one hopes, as well as stronger voices in media in general.

  15. ''cuts in living standards that austerity has helped bring about.''

    Did austerity cause the inflation, that eroded the living standard?

    If you read the comments at the major online newspapers, there is a lot of public fury about inflation. In particular wages not keeping up with inflation, causing a drop in living standard.
    And guess what, Krugman is calling for even more in inflation on his blog today, to overcome the supposed secular stagnation.
    If this view is shared by the majority of macro economists, than the better start explaining this to the public!
    My guess is although the public doesn't like austerity, they will vote for it over inflation.

  16. People are busy working and entertaining themselves. They then rely on "media" to give them a bite size explanation. Many sophisticate actors know the cognitive limitations of the masses and have become very sophisticated at "crafting a message". Hence the masses can be sold one boondoggle after another..WMD, expansionary austerity etc.

    1. Exactly GMAN - and was something I also touched upon at the end of my overly lengthy comment above.
      What remains suprising is that not only do these falsehoods/ false analogy's (the 'boondoggles' - is that a word?) persist even after they have been shown to be nonsense, but the reputations of those who peddled them remain unscathed.
      Thatcher's analogy of managing the economy as if were a household persists and is even repeated in a different way today (as in the "we've all been living beyond our means, so must therefore all tighten our belts...") despite both being completely nonsensical false analogies.
      Is it really so difficult to appreciate that if all entities in an economy "tighten their belts" and attempt to pay down their debts simultaneously (both private and public sector), then there is little/no source of demand in the economy, resulting in years of anaemic growth at best, and recessions...exactly what the uk has experienced over the past 3 years until very recently (fiscal consolidation has been eased up greatly in 2013, but they don't like to mention this, hence the recent 'bounce-back').

      But as you state, these soundbites are simple, understandable messages that sound plausible, but rest upon the limitations/lack of economic knowledge of the populus.

    2. Well, the "household/belt-tightening" analogy is "folk economics" for you, based on "common sense." It's true to the extent that "folk physics" is true, i.e. you look out the window and conclude the world is flat.

      (There's a paper around by Paul H Rubin. Key point: "folk economics is the economics of wealth allocation, not production." This leads to zero-sum thinking. To paraphrase the K-man: Macro economics is intellectually hard - no wonder so few people try it.)

  17. Simon,

    A very, very good question: I have been wondering about for many months since I discovered the truth by reading Krugman's book 'End This Depression Now'.

  18. And to continue: thank you for raising this.

    I share your anger; at the politicos with their con tricks; at public ignorance; at the absence of any person - journalist or other powerful person - to make an outright and public campaign of rejection of austerity.

    'Maturity' of the British public'.. ha,ha

    'Britain has lessons to impart' - What laughable drivel!

    Britain has absolutely nothing to impart, except perhaps a lesson in cynical manipulation of a largely stupid populace by greedy, self-seeking politicos.

    Your last para is especially poignant - it explains the suppression of reasoned argument based on evidence by philistine, ignorant, little-Englander myopia.

    For me Animal Farm provides as good an answer as any to your question:

    Why no public fury? Oink, oink or rather baa, baa...

  19. With as much respect as I can muster for the conservative party, they manage to incorporate what would be considered the far right in much of Europe.
    A similar dynamic of the two-party system in the USA is what is keeping the GOP in internal gridlock. Interesting how Cameron is able to work around that.

  20. "That is a huge amount of money to waste: resources that wanted to be used to produce goods and income that everyone could enjoy, but which have been kept idle as a result of government action." What are these resources? I guess you mean people, so why not say so. And it seems to me that the expansionary solutions peddled by the Keynesians would require other resources to complement labour, and those resources are increasingly expensive. I suspect that the real problem is that the unemployed are simply not employable at the wages they expect - immigrants who settle for less get jobs on farms and in care homes for example. This is not to say that I am some right wing ideologue - if you want the unemployed to work, both because you think it is good for them (a bit patronising) and because it gives them the income to enjoy a better standard of living, fine, redistribute some money from the wealthy to pay for it, but don't expect it to boost GDP.


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