Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday 31 March 2014

The Left and Economic Policy

Why does the economic policy pursued or proposed by the left in Europe often seem so pathetic? The clearest example of this is France. France is subject to the same fiscal straightjacket as other Eurozone countries, but when a left wing government was elected in April 2012, they proposed staying within this straightjacket by raising taxes rather than cutting spending. Although sensible from a macroeconomic point of view, this encountered hostility from predictable quarters, as I noted here. But in January this year President François Hollande announced a change in direction, proposing tax cuts for business and public spending cuts. When your macroeconomic announcements are praised by Germany’s foreign minister as courageous, you should be very worried indeed. Any hopes that Hollande might lead a fight against austerity in Europe completely disappeared at that point.

You could argue that France was initially trying to oppose irresistible economic and political forces, and no doubt there is some truth in that. But what was striking was the manner in which Hollande announced his change in direction. He said “It is upon supply that we need to act. On supply! This is not contradictory with demand. Supply actually creates demand“. This is not anti-left so much as anti-economics. Kevin O’Rourke suggests this tells us that to all intents and purposes there is no left in many European countries. It would indeed be easy to tell similar stories about the centre left in other European countries, like Germany or the Netherlands. With, that is, the possible recent exception of the Vatican!

Unfortunately Europe here includes the UK. Labour’s shadow chancellor, Ed Balls, was correct in saying that the government’s austerity measures were too far, too fast, yet the party now seems to want to show they are as tough on the deficit as George Osborne. (Its opposition prior to that often appeared half hearted and apologetic.) Again you could argue that they have no choice given the forces lined up against them, and again I would agree that this is a powerful argument, but I cannot help feeling that this not the complete story.

I am not trying to suggest that if Labour had taken better positions, it would have necessarily made much difference. Take the issue of flooding, where Labour did try. The BBC failed to ‘call’ this issue, by for example reproducing the official data shown here, and instead fell back on ‘views on shape of the earth differ’ type reporting. Here the BBC failed in its mission to inform, and instead behaved in a quite cowardly manner. But at least in this case Labour tried.  

What strikes me about the economic pronouncements of the Labour Party is the number of tricks they miss. On too far, too fast, for example, an obvious line of attack would have been to note how Osborne did change his policy (proclaiming U turn! finally followed our advice etc). In addition they could say the recovery only took place once austerity was (temporarily) abandoned. Simplistic stuff I agree, but this is politics. To take a much more recent example, an easy line for Labour to take on the last budget and pensions was that Osborne’s policies would reduce incomes for prudent pensioners. Yet all Labour seems to be saying is that they will support the reforms, but want to wait to see the details. In other words, there is no opposition to the government’s claim that this was a budget for savers and pensioners.

With austerity and pensions there may be subtle factors that I have missed, but in their absence one conclusion you could draw is that the Labour Party in the UK is not getting good economic advice. I’m afraid I have no deeper knowledge on whether this is true or not. That has to be the conclusion in the case of Hollande’s apparent embrace of Says Law. Yet I doubt that the left does not want good economic advice. As I noted here, in the last Labour government the influence of mainstream economics had never been greater. Is this a paradox?

Perhaps not, if you think about resources and institutions. Seeking out good advice (and distinguishing it from bad advice) takes either money or time. An established government finds this much easier than an opposition or a new government. When labour came to power in 1997 they did immediately introduce well researched and judged innovations in monetary and fiscal policy, but they had had 18 years to work them out.

In addition, with the Eurozone there may be a factor to do with governance. I have just read a fascinating paper by Stephanie Mudge, which compares how economic advice was mediated into left wing thinking in the 1930s compared to today. To quote: “it stands to reason that an economics that works through inherently oppositional national-level partisan institutions would be especially fertile terrain for the articulation of alternatives; an economics that keeps its distance from partisan institutions and is more removed from national politics, but is closely tied to Europe’s overarching governing financial architecture, probably is not.” What is certainly true for both the Eurozone and the UK is that leaders of independent central banks often appear naturally disposed to fiscal retrenchment.

This gives us two problems that occur for the left and not the right. However the right has two problems of its own when it comes to getting good policy advice. The first comes from a key difference between the two: the right has an ideology (neoliberalism), the left no longer does. The second is that the resources for the right often come with strings that promote the self interest of a dominant elite. So although the right has more resources to get good economic advice, these strings and their dominant ideology too often gets in the way. But what this ideology and these resources are very good at is providing simple sound bites and a clear narrative.



  1. This is where a BBC U needs to be set up (the 'U' is for university), certainly on radio and perhaps on television intermittently.

    BBC Radio Four is so patchy that a better standard is necessary, and there is no incentive for press barons to set up a place of intellectual inquiry and information rather than a propaganda arm for their own desires.

  2. "The first comes from a key difference between the two: the right has an ideology (neoliberalism), the left no longer does."

    I would put it another way: the right, at least in Europe, took the left's best ideology and learned to win arguments (at least sometimes) on the left's terms. The left's best ideology is social democracy: democratically elected politicians can solve/mitigate the inherent intolerable conflicts within a capitalist society through reasoned consideration of the situation and appropriate government intervention.

    (If that doesn't seem like an ideology, then this helps support my point: what was once left-wing ideology is now accepted by almost everyone except the very far left and the very far right. Consider what the Duke of Wellington, Benjamin Disraeli or even Lord Salisbury would think of the NHS, inflation targeting, state pensions, minimum wages, immigration controls/passport only travel, or anti-discrimination laws.)

    The European right no longer believes in conservativism, in the sense of thinking that "Our ways are best, our institutions are an essential part of our identity, and this is how we shall be". Even the most right-wing hang-em-and-flog-em Tories today (e.g. Daniel Hannan) are closer to Edmund Burke than the young Gladstone (who defended severe anti-Catholic measures). In most European countries, classical conservativism was a casualty either of the shame and horror World War I or World War II, and so we have to call Burkean liberalism or Christian democracy "conservativism" just to still have an interesting referent for the word.

    So instead conservative parties, starting as early as the 1920s, learned how to play the social democratic game. Problems with worker-accidents and asymmetric worker-employer relations in general? Regulate it. Nationalization? Given that Labour were barely in office, it should not be surprising that ever nationalization of the 1920s and 1930s was during parliaments with big Tory majorities. And it was only very recently that Osborne was in effusive love with the minimum wage, which is a paradigmatic social democratic policy (in the sense I have defined this ideology).

    So I disagree: the left has an ideology; its problem is that the right is quite willing to be social democrats when it suits them, and so all that tends to remain for left-wing people to advocate is those aspects of social democratic policy that are most controversial. (One could argue that Blair did the same thing with neoliberalism, if the word 'neoliberalism' were better defined and not a substitute for rigorous thinking.) The European left's general problem is that its social democratic wing won the battle of ideas in social policy in the 19th and 20th centuries, and the right is often very good at doing social democratic social policy in a way that leaves room for things they really really like, e.g. having regulating utilities rather than nationalized utilities, or having a quasi-market healthcare system like the NHS.

    I also think that "follow the money" is an unreliable approach, which is not to say that it's always wrong. One can explain, say, the enthusiasm of those otherwise keen on "rolling back the state" for agricultural subsidies due to the financial situation of the Tories, and one can explain many Labour policies by their dependency on funds from the trade unions (it's plainly false that the right is the only side with strings- every party has its paymasters) but as Keynes said, in the long run, it is ideas that matter.

    (I speak only of the European right. The American right is very different. I also only mean the conservative right, as opposed to say a right-libertarian or a fascist; all three are very different ideologies with tenuous connections.)

    1. Well the left has equal marriage rights which many right parties also back so no difference there. The left support immigration as cheap labour and new consumers which clearly the right supports with its slavish addiction to business interests. The left supports responsible low inflation approaches which clearly the rentier class has no issue with.

      Oh the left wears red while the right typically dont. I knew there was at least one issue separating them.

  3. Sorry to go on and on, but: I didn't mention the fact that imperialism (in anything but a pejorative redefined sense of the word to mean "foreign intervention by governments I don't like") has gone from EU Europe. 19th/earlier 20th century Tories would be appalled at how little we are spending on building up the Empire. Thatcher's talk of "Victorian values" was as inaccurate as it was ridiculed even ages ago in the 1980s. In our tiny corner of the world, they don't make conservatives like they used to- thankfully. Mainstream modern British ideology is left-wing, and so we've had to redefine what "right-wing" is just to keep up appearances.

    1. I agree that the line you draw from Castlereagh to Cameron does show a pragmatic Tory response to election winning politics. But, more significantly, it is also the line which maps the growth in the British franchise. Franchise expansion was the necessary condition for the ultimate triumph of the social contract. The idea of the national economic welfare being defined by the welfare of the many would have been unthinkable to a Castlereagh or a Wellington. It was only via their growing voting power that the majority gradually imposed its agenda on the plutocratic minority. That is why, by the mid 20th Century a form of social democracy achieved the status of political consensus.

      But the impact of the popular franchise has been undermined and, on occasion, actively subverted by the growth in the power and prerogatives of the EU. The slow transfer of power from the few to the many in the 19th and 20th centuries is now being swiftly reversed as power again concentrates in the hands of the unelected few.

      The case of Hollande is merely the most recent episode of a growing catalogue of European policies being pursued that demonstrably damage the economic welfare of the wider electorate in favour of a small plutocracy. These politicians place conformity to and support for the EU objectives above those of the national economic welfare. France’s policy of austerity was not determined by mandate of the French electorate but was predetermined by international treaty – a treaty that Hollande won votes by claiming that he would repudiate. You can vote for any policy you want but the only policy you will get is austerity as mandated and enforced by the EU. Power and policy are now determined at international negotiations in which the many must conform to the peculiar economic shibboleths of the current paymaster in Berlin. Keynesianism is no longer a possible basis for policy because Keynesianism has effectively been made illegal by treaty. According to the German supreme court even Friedmanite monetarism is illegal under treaty law. On the other hand Say’s law is now consecrated by treaty. Hollande was therefore expressing his submission to the governing eurozone doctrine rather than expressing his own opinion of the economic or intellectual merits of Say’s law.

      It is this growing disconnect between the vote and the policy which is responsible for the staggering levels of bail outs for banks, rising unemployment and output destruction that we have witnessed in Europe over these last years. Without public accountability power invariably becomes captive to special interests (socialism for the rich & austerity for everyone else) and it is implemented by incompetent (because politically immune) functionaries.

      This was the point that Kevin O’Rourke was making and that SWL only flirts with here (with his Mudge quote above). O’Rourke’s position is that so long as the left are hostage to the European idea they cannot perform their historic function of delivering a left of centre policy.

      An trans national oligarchical arrangement will pursue the interests of the elite in being precisely because it is an oligarchical arrangement. A democratic arrangement will pursue the interests of the general welfare precisely because it is a democratic arrangement. Leaving euroscepticism to the blood & soil right will come to be seen as an historic blunder of Europe’s social democrats.

      “The prerogatives of the EU are great, they are growing and they should be reduced” is the motion which Labour should be pushing - not the nationalist Tory right.

    2. I only flirted with it because I still have a question. Does austerity and an anti-Keynesian view hold sway in the Eurozone because of the interest of a "small plutocracy, or because of Germany? If the latter, why is an alliance of anti-austerity countries not possible, and are current German attitudes immutable?

    3. W. Peden, I would like to contact you. Is it possible?
      My mail is cmll at autistici dot org. Drop me a line if you can.

    4. Simon,

      SWL: “Does austerity and an anti-Keynesian view hold sway in the Eurozone because of the interest of a "small plutocracy, or because of Germany?”

      To your first I think that Germany is the pioneer of cross party lockouts and that the ordoliberal ideology (in its widest sense) has encouraged active collusion between interest groups that ought (in a healthy polity) to be opposed. This is not just a matter of all those German grand coalitions but extends deeper.

      Item: The German unions have colluded in a strategy that has seen their members living standards fall even as corporate profits soar.

      Item: The financial sector sit on the boards of the industrial & engineering sector and collude to ensure that capital pours into that sector rather than into IT start ups or service providers. Germany has atypically high levels of patent applications but atypically low levels of investment in new technology or non engineering business start ups.

      Item: State politicians sit on the boards of Landesbank and collude with bankers by politically underwriting poorly performing (when not insanely risky) loans. Germany has the most dysfunctional banking sector in the developed world.

      Item: A culture of dependency on wages (& therefore on their employer) is fostered by Germany’s low levels of capital accumulation. House ownership is atypically low, German savings rates are atypically high but their rate of return on those savings is atypically low because their financial providers (predominantly banks) direct them to low performing instruments provided by the capital markets (Pfandbriefe) rather than accessing the higher returns available from the stock market. Private pensions were virtually non existent in Germany until recently – and are still atypically low.

      Item: The tax burden on the average German worker is an extreme outlier (& an instrument of suppression of household discretionary spending). The marginal tax rate is also punitive at middle earnings bracket.

      But there is no mainstream party committed to reversing any of this. Bizarrely most of these issues were never even raised by the mainstream left at the recent elections. Ordoliberalism has been internalised by German institutions, parties and intellectuals to an astounding degree. Meanwhile in the real world Germany may be the model everybody talks of but she has engineered a tiny long term growth rate out of very high levels of sacrifice to the average German worker and to overall German living standards. But of course she has world beating exports and corporate profits and that is obviously all that now matters.

      As for the eurozone: the German electorate were consistently polled as being opposed to joining the euro by @ 66%. Their “representatives” voted to join the euro by 96%! Just 4% of Germany’s elected representatives agreed with 66% of Germany’s voters on an issue of critical national importance. So the political traction enjoyed by the German voter has been a diminishing asset for years now. The economic agenda is demonstrably unconcerned with the public welfare. In short the control of German policy fell into the hands of a small plutocracy years ago and there is therefore no contradiction between the interests of a small plutocracy and the eurozone policy of a German government (of any hue). They are the same thing.

    5. @SWL: “why is an alliance of anti-austerity countries not possible?”

      Here I must confess my own continuing astonishment. The nearest I can get to an (unsatisfactory) answer is that the commitment of their political elite to the EU project really is their overriding objective. If they had defaulted (and some of them should have defaulted) they would have had to depart monetary union (to devalue & recover) & thereby saved their economies by destroying the euro. If they had instead clubbed together and outvoted German austerity (in the reasonable expectation that Germany would leave the currency union in retaliation) - then their economies would have been saved but the euro would have been destroyed. After tying their own hands in this perverse manner it was no longer a matter of votes in the European Council (or even the ECB) but of following the policy of the member with the most cash (Germany). Only German cash pledges could keep both them & Germany in the euro. Saving the euro (& their participation in it) has therefore become the sine qua non of mainstream peripheral politics. Saving the euro is the justification for submitting to Germany. We may be witnesses to a sort of meta Stockholm syndrome in which the euro’s chief victims embrace their own bondage.

      But the laws of political gravity cannot be suspended indefinitely. The rise of far right & far left populist parties with an implicit or explicit agenda of leaving the currency union is testament to the folly of sacrificing public welfare on behalf of EMU. As mainstream politics become ever more toxic to the public welfare the public will start the inexorable process of demoting mainstream political parties to the fringe. Given how extreme mainstream policy has actually become this is not as inappropriate a public response as some seem to think.

      @SWL: “Are German attitudes immutable?”

      No. But until they are opposed within domestic politics and externally threatened by European trade retaliation then they are on a cost free excursion without a foreseeable end.

    6. "If the latter, why is an alliance of anti-austerity countries not possible, and are current German attitudes immutable?"

      It would be like having all Roman provinces forming an alliance against Rome. All EU economies are peripheral countries around the German economy. The EU is really an extension of the DM area.

      I think though you have got to watch words like "pathetic left". It is a very English political economy view of Europe. It is actually not that pathetic. The German economy works through a centralised and corporate wage fixation system where workers have a large say.

      The German "model" (to use a dreadful word) is hard currency backed up with centralised wage fixation that moderates price changes. This system in terms of equity, certainly, and probably efficiency as well (judging by their industrial competitiveness vv non EU export competitors) has a lot of merits. It is an effective system in channeling funds into long term government and private capital investment.

      The political elite in Britain are much more divorced from the working (and unworking) classes and are therefore not trusted. An antagonistic relationship between capital and labour and a detached political elite remains intact. Low income groups have been told that globalisation and uncontrolled immigration even with high rates of unemployment and rapid change is good for them. They are not convinced. They are not necessarily wrong.

      The answer is job apprentices for the native low skilled coupled with a controlled inward flows of low wage labour until local worker productivity can compensate for the low wages of EU entrants.

  4. I suspect that political approaches are determined not by conviction or evidence but by 'what does the man in the street think?' And 'how will this policy appeal to voters?' As the dominant narrative in nearly all media since the begining of the depression has been 'neocon', not least because most funding is controlled by those with a vested interest in rightist policies, Labour party policy makers have not wanted to listen to advice however good that challenged the apparently 'received wisdom - how else does one explain the drift of Balls from his original Keynsian approach.

  5. "an obvious line of attack would have been to note how Osborne did change his policy (proclaiming U turn! finally followed our advice etc). "

    The problem is that if they had done this two and half/three years ago when the change occurred, then yes they could then play this card. it would have shown prescience.

    Arguing this now, only after the effect has become apparent, would only make them look fools.

    Precisely the same for those macroeconomists who went on and on about Osborne's Evil Austerity, who failed to spot at the time that it had been suspended, and who only noticed after the upturn had actually occurred. They, unlike the Labour party who are doing a perfectly reasonable job, deserve mockery.

    1. "The problem is that if they had done this *two and half/three years ago when the change occurred*"
      Firstly this appears an odd claim given that the data shows there was "substantial fiscal tightening until 2012/13. Fiscal tightening essentially stopped in 2012/3 and 2013/4", as our host notes in his linked blogpost above.
      ie. sometime during financial year 2012-3 it stopped, so the change occured approximately 18 months ago. Two and half/three years ago was till very much a period of fiscal tightening.
      The second part of the same sentence is illogical, where you mention Labour potentially attacking Osborne for changing policy "when the change occurred...would have shown prescience", given that prescience is 'the fact of knowing something in advance; foreknowledge'! To show prescience would have meant Labour attacking Osborne for the change before the change occured, which is of course nonsense. Furthermore Labour could'nt attack Osborne when the change occured since it takes many months for the data to compiled and published, so there would always be a substantial time lag. The same goes for the macroeconomists who correctly "went on about Osborne's Evil Austerity" (sound choice of words to describe the policy which stagnated the economy for 3 years at a cost of over £100bn), and "who failed to spot at the time that it had been suspended"...they couldn't until the data came out from FY2012/ sometime in 2013.
      Rather than "mockery", they deserve the highest praise for pointing out the terrible, costly policy errors of Osborne, and have the evidence and results to back up their argument. Your derision should be reserved for those politicians inflicting the economic and resultant social hardship, not the economists who have no control of the policy levers.
      Agree that Labour only now pointing it out would appear bizarre/foolish, but they have done a far from "perfectly reasonable job" and our host's original statement you quote above remains perfectly valid.

    2. I don't think you are right on the dates, no. Fiscal tightening stopped a year earlier than you suppose, in 2011-12, not 2012-13. See here, especially the OBR chart half way down.

      Indeed, if, as you claim, the tightening only stopped 18 months ago, that would provide no explanation as to why the recovery began a year ago. 6 months would be far too short a time lag.

      " Labour could'nt (sic) attack Osborne when the change occured (sic) since it takes many months for the data to compiled (sic) and published, so there would always be a substantial time lag"

      Silliness. PSNBR data is published with projections well into the future.

      No macroeconomist of any standing forecast the recovery. None. The entire profession cocked up. Again. Austerians as well as Keynesians.

      The usual excuses economists give are either

      (i) "I am not in the business of making projections". Which is transparent rubbish. All economics (save for economic history) is in the business of saying "if policy choice X is made, the consequences will be Y".

      (ii) They cannot project inflection points as these are generally caused by unforeseen events (Lehman Bros, ERM cisis, oil shocks). No such event occurred this time. They just didn't look at the data, but instead believed Osborne's (and Balls') rhetoric about austerity. Duffers.

    3. That's a little unfair Hugo. Simon was doing posts in late 2012, e.g. "The UK and Austerity: Some Facts" (October 2012), which looked at the data in detail and concluded that yes, we did have ongoing austerity in 2012, and labelled those who differed from that view as "Austerity Apologists".

      Obviously if the "facts" can change ex post... they were clearly not "facts" in the first place, but never mind.

      I think Mr. Balls should have our sympathy, he is expected to repudiate the arguments he made for the last three years (with the full support of Keynesians at the time) and not look like an idiot - it's quite a challenge.

    4. Agree the precise timing of when consolidation ceasing needs clarification, as it depends on how it is measured.
      Also, clarification of the availability of the data to illustrate is needed - perhaps are host can help here to give an idea of when the data became available which shows the slow down in consolidation?
      A quick 1 minute check using google reveals that numerous economists and economic institutions forecast growth for 2013, a year or more in advance in some cases, including economists at the CBI
      and the BCC (Chief economist David Kern), and the OBR (mentioned in the text).,-with-prospects-improving-in-2013.html

      and the European Commission

      Now for copy and paste:
      Again, even if they don't make specific predictions or got them wrong, rather than "mockery" they deserve the highest praise for pointing out the terrible, costly policy errors of Osborne, and have the evidence and results to back up their argument.
      Your derision should be reserved for those politicians inflicting the economic and resultant social hardship, not the economists who have no control of the policy levers.

    5. Arf

      Simon, you do know that David Kern of the BCC is an Evil Austerian, right?

    6. Kern's economic stance has no impact on the fact that his predictions of UK growth in 2013, along with other economist mentioned disprove your innacurate, gross generalisation that "No macroeconomist of any standing forecast the recovery. None. The entire profession cocked up. Again. Austerians as well as Keynesians". Whether austerian or otherwise, there were plenty who accurately predicted it were there not?

    7. No, there really were not 'plenty'. Look at the FT annual predictions for the UK for 2013 for example. Uniform misprediction. The national and international bodies making predictions for 2013 were all way off. The reason is that most play it very safe. They just restate the current weather and predict +/- 0.1% towards trend. Worthless.

      Admittedly academic economists did (and generally do) far worse on predictions than those in the commercial sector.

      I am, I confess, very sceptical about the entire economics profession, right from the MMT loons who think there it is a great discovery to learn that banks can create money, through the Keynesians who want us to marvel at the insight that a looser fiscal policy might be helpful at the ZLB, to those who think that the solution for the distribution of all public goods is the creation of a market.

      Easily the least impressive of the social sciences.

    8. Well, as I said, a one minute google search revealed some who quite accurately predicted the growth of 2013 - CBI predicted 2%, BCC 1.9%. A little more time searching would reveal plenty the IMF (July 2012) adjusting their prediction from 2% to 1.4% (a little less accurate). There were of course plenty who did not make accurate predictions, but saying "No macroeconomist of any standing forecast the recovery. None. The entire profession cocked up. Again. Austerians as well as Keynesians." is simply untrue. Likewise claiming that "Keynesians who want us to marvel at the insight that a looser fiscal policy might be helpful at the ZLB" is a misrepresentation. They simply want it to be acknowledged and practiced, not marvelled at.

      By the way, the OBR graph you pointed out previously does not, as you claim show "Fiscal tightening stopped a year earlier than you suppose, in 2011-12, not 2012-13.".
      Look again at PSNB: 2010-11 9.5%
      2011-12 7.9% (a significant change on previous year)
      2012-13 7.8% (hardly a change on previous this is the period of slowing/stopping fiscal consolidation, which the OBR's cyclically adjusted primary balance figures similarly show for those years (-4.4, -2.9 then -2.8 in 2012/13)

    9. That's the problem with revisionism. The "facts" about austerity as seen by Keynesians in 2012 were that the CAPB was falling in 2012, that UK fiscal policy was contractionary, that contractionary fiscal policy was contributing to weak growth and the double-dip, and that Ed Balls was right to call for a Plan B.

      The "facts" about austerity as seen by Keynesians in late 2013 were that the CAPB was not falling in 2012, that UK fiscal policy was not slowing growth in 2012, and that Osborne had already adopted a Plan B in 2012.

      How do you expect poor Mr. Balls to keep up?

    10. Simon,
      Check the dates on the predictions your googling has found for you. then check the later predictions for 2013 by the CBI and BCC. They revised them down, to 1.2% and 1%

      I agree that if you look at all forecasters over a wide period of time, and only take into account those forecasters who got it nearly right once, ignoring those who were consistently wrong and also the occasions when those who were sometimes right also got it hopelessly wrong, that the "profession"'s performance starts to look pretty good.

      The same kind of double think that is required when we are told by certain commentators that they always said that austerity was ended in the UK long ago and that they never said anything to the contrary.

    11. I appreciate and agree that forecasters change their predictions - from nearly 2% to nearer 1% as you point out.
      However, recall that from a growth rate of 0.2% (annual) in 2012 when the predictions above were being made, many economists including the ones cited above were correctly predicting stronger growth (even 1.2% is a significant improvement compared to the prevailing 0.2% when the predictions were being made). Sure, the ones quoted above were not spot on, but remember what you categorically stated: "No macroeconomist of any standing forecast the recovery. None. The entire profession cocked up. Again. Austerians as well as Keynesians".
      This is demonstrably false, since they did forecast the recovery, albeit some were more accurate than others, but significantly improved growth was predicted.
      I am genuinely interested: Why no disdain for the politicians; those inflicting the economic and resultant social hardship, not the economists (who do make mistakes, but not always) who have no control of the policy levers?

    12. Mockery and disdain is deserving for those who claim more than they can deliver.

      Economics has a mystique, encouraged by the increasingly difficult maths (which, again, I confess that beyond a certain point I am not able to follow) that gives it the pretense of a science. It is populated by philosopher kings who make a claim to neutral expertise.

      Politicians like Osborne and Balls are deserving of our respect in a way that these sellers of platitudes are not. They are not claiming some kind of higher knowledge or wisdom. They represent their sections of the electorate to the best of their ability, and say and do what you would expect them to say and do.

      Looking at the figures, it seems implausible to me that Osborne's 'brutal austerity' made much more than a marginal difference to the UK's performance. Yes in hindsight he cut infrastructure spending too hard, but I can't find it in me to blame him too harshly for failing to spot the ez crisis and (more importantly) the rise in commodities, especially oil. Similarly Labour cocked up by running too loose a fiscal policy in the run up to the crash, but that they did not see it coming was not the politicians' fault.

    13. In my humble opinion you appear to have a very distorted view of economists in general, though a minority may be guilty to some extent of what you say.
      As for the politicians paragraph, I believe the complete opposite to be true regards respect, knowledge and wisdom. Osborne certainly does represent his section of the electorate, but not the majority of the population unfortunately.
      Likewise, whilst it may appear implausible to you, numerous studies over the past few years have found that Osborne's 'brutal austerity' made a substantial difference to the UK's performance...even the government's own fiscal watchdog (the OBR) conclude that austerity alone knocked 5% off UK GDP, or >£100bn in lost output. Most other independent studies find this figure to be greater.
      Indeed he did cut government investment spending much too fast, too hard, and the EZ crisis was already well underway (2009) before Osborne took the helm, so he didn't need to spot it coming - it was already happening as he took over.
      Its has genuinely been an interesting conversation, but I still can't fathom how there is no criticism for the politicians (Osborne etc) for the genuine hardship they have directly caused through their mistaken policy actions (namely front-loaded fiscal consolidation, undertaken during a period of co-ordinated fiscal consolidation in the EZ)

    14. In blaming Osborne here you omit three facts (the first two S W-L always ignores).

      The first is the electoral cycle. Cuts are always front loaded into a government's term. If you look at UK spending cycles back to the 50s fiscal policy tracks the electoral cycle: not the economic one. This is the well recognised problem with trying to use fiscal rather than monetary policy in a democracy. The same will happen post 2015: whoever wins will tighten fiscal policy at the start of their term (both Labour and the Tories have said they will), and there will be a loosening towards the end.

      Second is that what Osborne did (as opposed to what he said he would do) was almost identical to the Darling plan.

      Third is that the rebound will be (and now observably is) stronger subsequently as a result of the earlier fiscal tightening. The growth is not lost, it just arrives at a different point of the cycle. Luckily the UK is so large that it is quite hard for any Chancellor to do permanent damage to it (or conversely, do much to improve its performance).

      There is nothing particularly clever about buying 2% growth by borrowing 12% of GDP pa as we were doing in 2010. Even if desirable in the economic abstract, it wasn't politically sustainable.

    15. "The growth is not lost, it just arrives at a different point of the cycle."
      If this is what you believe and can be taken an indicator of your understanding, I think I'll leave the conversation at this point, but not before urging you to look up the term 'hysteresis', and to read the outstanding economist Robert Skidelsky's summary of George Osborne:

    16. I should also have pointed out the obvious - the first two points you mention above don't absolve Osborne at all...he is responsible and executed policy, whether it was the same or different to Darling's plan is of no consequence, plus there were other policy choices available (simply not undertaking contractionary fiscal policy during a downturn would have helped!).

    17. It is indeed my understanding.

      Guess who agrees?

    18. This comment has been removed by the author.

    19. I think you mean "my misunderstanding", as S-WL does not agree:
      Yes, of course growth (rates) return to trend, but importantly the output lost during recession is gone, and in the context of what you wrote... "quite hard for any Chancellor to do permanent damage", this is simply not true, as
      SWL neatly explains in the blog post you cite: "There is a quite powerful argument that austerity has additional *longer term costs*, besides the *lost output during the recession*, because of hysteresis effects. That argument would be disproved if the recession left no permanent scar, which we would only know if output returned to its pre-recession trend. Again *rapid growth as we begin to come out of the recession gives us no information on this*."
      Presently, the hysteresis effects of prolonged, high levels of long-term unemployment in the UK look potentially quite bad:

    20. "In a demand led recession, austerity reduces the level of output from what it otherwise might have been. In the simplest case, once we come out of recession output goes back to the level it would have been without austerity. (There is no long term impact on supply.) So austerity leads to some years where growth is less than it would have been otherwise, followed by later years where growth is more than it would have been otherwise."

      S W-L.

      I agree.

      So, I don't endorse your claim "the output lost during recession is gone".

      As for hysteresis effects, we just don't know. Long term unemployment does not look great, but unemployment generally looks very good.

    21. SWL: "There is a quite powerful argument that austerity has additional *longer term costs*, besides the ***lost output during the recession***"
      Not sure why you don't endorse 'my' or SWLs claim "the output lost during recession is gone". Of course it gone. If you're off sick and can't make any products this week, then regardless of how many products you make next week when you return to work, you've still lost that production (output) you would have made had you not been sick.
      Agree, we will have to see what (if any?) effects the high levels of long-term unemployed have on the future productive capacity of the economy.
      Without prolonging the discussion any further, don't agree with "unemployment generally looks very good"...yes the raw numbers do, but the usual suspects of zero-hours contracts, underemployment, re-classifications of 'unemployed' (which all governments do) masks a rather more unhealthy jobs market.

    22. In my humble opinion you appear to have a very distorted view of economists in general, though a minority may be guilty to some extent of what you say.

      I disagree, and so would many others. The micro-foundations of modern macro-economics are intensely ideological. Of course they are. Start with the very first one: limited wants and limited resources. Is that your view of humanity and mankind? Well maybe it is. But it is very debatable. In fact the whole Enlightenment project was basically a project against that. And it is certainly not scientific fact. And when it is presented as a starting point of analysis you can see in which direction the academic portion of the discipline is most comfortable with. (Why - because the maths involved in not using representative agents but insisting on these optimisation conditions is just too ad hoc.) There are some who do not agree with this integrated approach, notably Krugman, but believe me their numbers are small and they have an enormous fight on their hands.

  6. Probably the offhand comment about the Vatican is the correct answer. One person with conviction and a good grasp of what the Pope is supposed to do and what the left values attributed to Jesus actually were has made a huge difference.
    Hollande apparently gained power by visiting and getting to know the people who would vote for him not because he had any real left ideology and plan. One of his first acts was to ask for the backdoor to go midnight visiting. The man he replaced DSK also did "midnight visiting" and "daylight visiting" flouting the law and ignoring his IMF duties. DSK's commitment to the left was probably the same as Hollande's - access to power for power's sake. Many of the men in leftist parties are anti-feminist and not committed to the environment which reduces their recognition of good plans and policies. Hollande's first reaction to defeats this week was to replace his PM who was apparently OK but not popular, instead of implementing left policies and abandoning austerity promises.
    Edward Miliband was chosen as an Obama clone but the original was not authentic, so he is a clone of a fraud. Another reason for his weakness might be that labour support really comes from Scotland. Since TINA to austerity and budget balancing this shows exactly who runs the world no matter who the nominal leader is.

  7. On Hollande position, I think it is more subtle than that.
    I believe he is perfectly aware of the dire consequences of fiscal contraction. Agnès Bénassy-Quéré, who Hollande appointed as the chairman of the Conseil d'analyse economique (basically the Council of Economic Advisers), publically made the case in 2012 for the (temporary) higher taxes, higher spending as a sensible macroeconomic policy.
    The point of his apparent embrace of VSP rethoric is probably to please Frankfort and Brussels, to pose as a Tough, Credible, blablabla person in order to obtain delays to meet the deficits reduction target (which he did and intent to extend as his yesterday speech hinted).
    This is obviously a coward move. But under the given eurozone constraints, it may be the least worst decision.

    1. A different anonymous here. Hollande also probably knows that the major French banks remain in horrible condition, and he worries if he goes bold on a counter-proposal to the Merkel-ECB neoliberal European vision -- something that openly demands looser monetary policy and a vision of solidaristic social-democratic burden-sharing between creditor and debtor nations -- he'd be endangering the stability of the French financial system in the short term, as the VSPs across Europe freaked out. France can't be bold because it's not willing to openly re-capitalize its zombie banks, which would be required if it were to more courageously take on the neoliberal conventional wisdom of well-placed European political and bureaucratic elites.

  8. The cowardice of our leaders continues to sicken me. I am only heartened by columns like these and the rational comments of its readers. Surely common sense must prevail as it inevitably has throughout history, I just fear I won't be around to see it...

  9. Simon,

    Your analysis of the weakness or pusillanimity of the centre-left across Europe (though not the USA, it seems) is spot on.

    Here I am, a life-long Tory voter, who has personally suffered Austerity and decided enough is enough, I want to vote for a social-democratic party that cares, amongst other things, about full-employment and equality.

    What do I find, however? A Labour party, cringing and more in the hands of the rich than the unions; that accepts uncritically all the 'zombie' nostrums of the 'deficit scolds' and 'inflationistas'

    You write '...but in their absence one conclusion you could draw is that the Labour Party in the UK is not getting good economic advice. ' Why don't they read your blog, Paul Krugman's and the many others which you list here in your blog. Better still perhaps you and Krugman could both become Ed Balls' advisors?

    1. Good point...unfortunately it appears that theres not a great deal of difference in terms of economic policy between the current clowns and Labour.

  10. «Your analysis of the weakness or pusillanimity of the centre-left across Europe (though not the USA, it seems) is spot on. Here I am, a life-long Tory voter, who has personally suffered Austerity and decided enough is enough, I want to vote for a social-democratic party that cares, amongst other things, about full-employment and equality. What do I find, however?»

    I understand this pretty well, but the problem that both our blogger and you share from my point of view is that you miss the big picture!

    The big picture to me seems to be that a "a social-democratic party that cares, amongst other things, about full-employment and equality" is not out there because social democratic voters who "cares, amongst other things, about full-employment and equality" are hard to find.

    The great victory of Thatcher (and Reagan) was that many voters who reckoned themselves working class now reckon themselves property owning middle/upper class, and vote ruthlessly for lower employment and wages and higher property prices and pensions. They no longer need unions, they no longer need better wages, better working conditions because they no longer work or are close to retirement with good old style final salary pensions, and their mood is "Blow you, Jack, I'm allright".

    The Economist amidst all the propaganda still publishes penetrating details, and one was that The Coop shops, which started off as working class purchasing groups, in grimy neighbourhoods, are now upscale convenience shops as those neighbourhoods have been gentrified by endless remortgaging. A sign of the times...

    Blair understood that very well, and while his government did pursue *some* social democratic policies, they did so in a rather stealthy way, while overtly appealing to what they knew were the winning electoral constituencies, mostly middle aged and older property owning divorcees and widows in the South East (think ASBOs...), something that this government is pursuing too.

    Their game was so obvious that again The Economist mocked them for keeping stealthy some of their best policies.

    Another anecdote that I like:
    «I happened to have been in company in a Scottish pub with Blair. He believed that Smith, for all his moral integrity and popularity, never understood the English south and was therefore likely to be a failure in the forthcoming election.»

    What the "English south" wants, it gets; as long as oil gushed or foreigners buy houses in London.

    1. How correct - the South East is booming , the motorways are endless queues of 4*4s , trains are packed with smart private sector types; its jobs everywhere again, yummy mothers going into the Coffee places with Thomas and Olivia, good schools booming with private ones doing really fine, everyone off to the elite Russell group, restaurants full, houses prices up and up...That's the bigger picture I feel it could be the Thatcherite bourgeoisie counter-revolution coming again. The middle class are in power and showing it.

  11. «the right has an ideology (neoliberalism)»

    Neoliberalism is not an ideology, it is a programme.

    What the ideology of the right is matter of debate even on the right. Corey Robin wrote a book recently that got good reception, and his argument is in two parts:

    * The ideology of the right is protean across situations and epochs.
    * This is because the right is about reaction against emancipation (where emancipation is the core ideology of the left), and that needs to adapt.

    I find the first point convincing, but the second seems to me deeply misleading, in both parts, because the author is overly keen to include "cultural" (that is, sexual) politics in the story the left-right conflict, an americanism.

    My impression is that he ideology of the right, the one that motivates whatever politics it chooses, is the protection and furtherance of the (economic) interests of incumbents, whatever the historical circumstances.

    There is another intepretation of the ideology of the right, that it is always social darwinism, watered down or not, because it is social darwinism that is used to justify the protection of the interests of incumbents. But I think that social darwinism is the *theology* of the right. Keynes remarked that practical men are slaves to dead economists; I think that dead economists and live ideologists are slaves to long dead theologians.

    «the left no longer does.»

    Given the above, the left's ideology is the furtherance of the (economic) interests of those who don't enjoy the perquisites of incumbency.

    The problem of the left in places like the UK and the USA is that most voters think that they are incumbents, and their interests as ladies and lords of their own mini-manor are aligned with those of the billionaire lords of the maxi-manors. The petty bourgeoisie rules...

    «But what this ideology and these resources are very good at is providing simple sound bites and a clear narrative.»

    In part because of the discovery that marketing and social engineering works well; for selling products and policies.

    But in part because they are right in the short term. A lot of voters are petty rentier bourgeoisie, and the "Blow you Jack, I am allright" attitude comes right to them.

    They don't realize that they are asset stripping themselves and paying a lot of money to the big rentiers for that privilege, and that their illusion of social class climbing has been funded by their own asset stripping and oil extraction and both are coming to an end. But for the older cohorts who dimly sense that the motto is "apre mois le deluge".

  12. for a proud European-(American) 'Lefty' this post is really irritating -(and I never would use the word 'pathetic' for such a nice gentleman as yours)

    BUT - First Hollande said:
    'le temps est venu de régler le principal problème de la France : sa production.
    Oui, je dis bien sa production. Il nous faut produire plus, il nous faut produire mieux.'

    and translated inro plain English that means that France has a production problem and that the country should produce more and better-

    and only THEN - came the other phrases Anglo-Saxon economist love so much to quote.

    And I alway wonders why -(good 'lefty') - Anglo-Saxon economist - have this desire to lecture the proponents of much better lefty ecomics?
    Is it the bad conscious - that they have to exist in one of the mosf unequal and labor unfriendly environments a so called developed country can offer - or the frustration that they NEVER will be able to offer their 'Labor' what Germany or France has to offer - thanks to a pretty admirable 'Left'!

  13. But I think I also found a (funny) answer to your question:
    'Why does the economic policy pursued or proposed by the left in Europe often seem so pathetic?'

    Because they can't be all like Germany - where Labor is King!

  14. Part of the issue is that why would you vote left even as someone who supports improvements for your country. You Vote Socialist and you get conservative. In nearly every country over the last 5 years where a so called left wing party has come into power they are indistinguishable from their so called opponents on the right bar campaigning for a few social issues like equal marriage rights (+1 by the way).

    I want to start a family in a few months. Would I vote Left wing with that in mind? Why would I! Meaningless platitudes wrapped up in PC spin doesnt change austerity politics or support me in those decisions.

    The fake left is dying in Europe. Thanks be!

  15. Thanks to SWL mentioning it, I was drawn to read S. Mudge's paper - and I found it profoundly lacking. Her proposition for explaining the dominance of austerity policies basically is that economists today - unlike in J.M. Keynes' times - rather like to work for the Commission than be affiliated to a party left of centre. I don't think that's historically correct, and I don't think that's a true assessment for today. In Germany, for example, I can instantly name three prominent economists who have a clear affiliation to the political left (Horn, Bofinger, Flassbeck). That doesn't mean that they had had any significant influence on the position of the SPD in the Euro Crisis or were able to talk the party out of its de-facto support for austerity policies. No, I believe the forces at work are much greater and much more complex than what Mudge is suggesting. For the EU, Fritz Scharpf has just published a great paper that has a detailed analysis of the institutional forces and economic interests that likely will make the current status-quo a stable one, no matter how great the distributive injustices and how big the democratic deficits ( In general and beyond the EU, one has to wonder why neo-classical economics survived and is enjoying a continued dominance in policy circles, despite its massive empirical failure in the form of the financial crisis of 2007/2008, while Keynesian economics got buried together with its empirical policy failure in the 1970s?!

  16. See page 29 :
    Finally the ECB considers QE rather than austerity...
    So, perpetual deficits pending trade with Mars ?

  17. The labour party is chicken shit and they are fighting the last war. Keynes vs Austerity is too technical unless they tie it to big narratives. These narratives write themselves - The debt was much bigger after the war so lets rebuild with the spirit of the blitz! Vera Lyn votes labour! Tories hate Britain and love oligarchs! Renationalise the energy companies and railways! Build council houses! We love the NHS and some dirty little financier wants to take it all away Tories are poshos who don't care about your suffering Eaton Eaton Eaton, do you know how much money David Cameron/IDS/George has?, *cough cough call girls cocaine... etc


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