Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 20 June 2014

The IMF apology nonsense: how to maintain a lie

When the current government took over in 2010, the UK economy had begun to recover from the Great Recession. In 2010 Q2, real GDP was about 2% higher than a year earlier. The new government embarked on a programme of enhanced fiscal consolidation (austerity). Growth over the next two years was less than 0.4% at an annual rate. The imminent debt crisis that was supposed to justify austerity never materialised - interest rates on government debt fell significantly.

On the face of it, this looks rather bad for the government. So it has been really important for its spin masters to manufacture a consensus that there was no serious alternative to this policy. This has involved three strands. First, that the recession was somehow the result of the previous government’s fiscal profligacy. Second, following on from this, that the government therefore had to ‘clean up the mess’ - austerity was inevitable. Third, that the economic recovery, when it came, was the reward for austerity.

The first strand is untenable. Yes, fiscal policy might have been tighter after 2000, particularly if we had known what we know now. But it played no part in causing the Great Recession. The second strand therefore does not follow. Among informed commentators on the UK economy, there is certainly no consensus that austerity was necessary. The third strand is complete and utter nonsense. To suggest that this story is self evident is a lie. So how did the government manage to convince almost everyone to accept the story as true?

First, it was vital that other governments were telling similar stories, and that real debt crises were happening not too far way. The idea that the Eurozone crisis is all about fiscal profligacy is equally untrue, but Greece provided the cover. Second, economists in the City tended to go along with the story, in part because it was in the interests of finance to do so. Third, most journalists and newspapers were happy to toe the party line. The occasional eminent journalist or academic would complain, and the Prime Minister revealingly described them as ‘dangerous voices’, but in truth they would only become dangerous if the political class took them seriously. They did not, as we shall see. The ultimate success of the lie was that political opposition to austerity died away.

There was just a little tidying up to do for the spin masters. The IMF had originally supported the 2010 austerity programme, but soon began to have doubts. As the economy continued to stagnate, those doubts grew more vocal. The IMF has an authority which really was dangerous. So when everyone, including the IMF, failed to forecast the strength of the 2013 recovery, the spin masters saw their opportunity. Before the 2014 Article IV assessment, they put out the line that the IMF really should apologise to the government for getting its forecast so wrong, and for daring to criticise the need for austerity.

Ashoka Mody systematically takes apart the idea that the IMF should apologise. But what was interesting for me was the idea that they should apologise ever got traction in the media. Please correct me if I’m wrong, but I do not remember a BBC interviewer ever asking the Managing Director of the IMF, or anyone else from the IMF for that matter, to apologise to the government before. It was so obviously an idea put out by the government in an attempt to stifle future criticism by the IMF, about policies like Help to Buy for example. The fact that newspapers and then a seasoned political interviewer on the BBC faithfully repeated it shows how dominant the austerity lie has become.

18 comments:

  1. An apology "was so obviously an idea put out by the government in an attempt to stifle future criticism by the IMF"

    Just a point of information Simon. I have not had any government minister or any adviser to a government minister or any civil servant tell me the IMF should apologise. The reverse in fact, as is documented here

    http://www.ft.com/cms/s/0/b8f18278-ecb5-11e3-8963-00144feabdc0.html

    Perhpas you have got the wrong end of the stick. Reporters will ask about an apology because saying sorry or refusing to say sorry makes a good story either way. It is therefore a perfect question and there is a case to answer. You have let your imagination play tricks with your reasoning here.

    ReplyDelete
    Replies
    1. Dear Chris

      Many thanks for this. I think the sequence went as follows. On 1st June the FT published a piece by Andrew Tyrie, a well respected and influential Conservative MP, which was very critical of Blanchard in particular. That is what I meant by an “idea put out by the government” (which is why I linked to my discussion of the Tyrie article at that point). The fact that the article did not use the word apology seems a rather pedantic point – its intent was clear. Your article of 6th June which you link to then quoted the Treasury as ‘not seeking an apology’, linking to the Tyrie article. The Marr interview was 8th June. So unless you want to argue that Tyrie has nothing to do with the government, then I do not think I’m imagining anything.

      But while I have your attention, do you want to try and justify this leader:

      http://www.ft.com/cms/s/0/03137634-1a13-11e3-93e8-00144feab7de.html?siteedition=uk#axzz2fcNbEFyZ

      Best, Simon

      Delete
    2. Chris Giles seems to be determined to destroy the FT's credibility, and doing a great job.

      Delete
    3. Technically speaking Andrew Tyrie is not a member of the Government as select committees are a Parliamentary institution which is formally independent of Government - in theory one of their purposes is to hold the Government to account. However, it was certainly the case that Tory (and Lib Dem) politicians wanted to criticise the IMF for its previous critique of UK austerity (although that critique was actually pretty half-hearted IMHO) - Tyrie was used (and happy to be used) as the mouthpiece. So the criticism was indirect rather than direct, but Simon's main point still stands. Great blog by the way, Simon!

      Delete
  2. I am suspicious of the idea that it was all part of a grand conspiracy. Yes, the UK government has been both very cynical and rather dishonest but people are obviously strongly predisposed towards believing in the austerity reasoning. The idea that austerity can solve our problems has been popular in almost all countries that have suffered the crisis, regardless of the level of honesty shown by their governments.

    Professor Wren-Lewis points out the nearby greek and eurozone problems as aiding this explanation but there is also the household comparison and the fact that understanding the keynesian alternative requires people to think in ways they are not accustomed to. Needless to say, few have the energy and/or motivation to do so. To the people who believe in the healing powers of austerity, all three strands make intuitive sense.

    ReplyDelete
  3. The government's preferred narrative is implausible. But, frankly, what do you expect?

    Governments in a democracy are in the business of getting re-elected. So, when something nice happens to an economy they claim credit for it, something nasty they say is down to an exogenous factor.

    Such is the way of the world, always has been and always will be.

    The position of academics is, however, quite different.

    If, for example, an academic were to give us a history lesson of why the incipient recovery of 2010 fell away, but omitted from his story the exogenous factors (in this case the sharp rise in commodity prices in particular oil, and the near catastrophic loss of confidence in the EZ, the UK's leading trading partner) but instead only focused on those decisions by the government of the day, we might accuse such a person of twisting the story in an inappropriate way to fit their preferred narrative.

    Unlike the government of the day, they would be falling below the standards we generally expect of them.

    Yes, the government in retrospect cut investment spending too hard when it got into power. I'd like to see a really careful study of the impact that had when compared with the other factors in play. The small figures involved, combined with what happened when the exogenous factors disappeared, make me somewhat doubtful about the narrative that says everything bad was Osborne's fault, and everything good would have happened anyway.

    Even then, I would understand that in the world as it is democratic governments function according to an electoral cycle, not an economic one, and that means spending cuts at the start of their term, not the end. The same pattern will be followed by the net government, just as it has by every government.

    That, of course, means that democratic governments will rarely make the optimal economic choices on fiscal policy save by chance, but I am not myself inclined to think that that requires handing over these decisions to committees of Philosopher Kings.

    Despite the views of Philosopher Kings to the contrary.

    ReplyDelete
  4. "The imminent debt crisis that was supposed to justify austerity never materialised - interest rates on government debt fell significantly."

    Could the govt claim that it was "austerity" that prevented the debt crisis from materialising?

    ReplyDelete
    Replies
    1. Indeed they would, although I do not think that claim would be very credible, as I explained in one of my first posts:
      http://mainlymacro.blogspot.co.uk/2011/12/there-but-for-austerity-go-us.html

      But the point I was trying to make in that opening paragraph is that on the surface the facts do not look good, so some spin was urgently required.

      Delete
  5. This post strikes a chord that seems to have been ignored by most journalists. Hugo André makes a good point about household spending influencing mass thinking too. But Chris Giles, to suggest that because you haven't been told directly means you did not receive the message eg from speeches, press releases or other means is disingenuous.

    Once upon a time, journalists questioned everything they were told, and investigated thoroughly. It was clear from the time of 9/11 that this function seems to have been lost; George Bush got an easy ride into the White House for his second term (all dissent to his rule was described as being "anti-American") and the same seems to have happened as soon as Cameron became PM: dissent from the press, such as it was, pretty much vanished. Instead of questioning the validity of the message, it was repeated as gospel as if there could be no other. Is it any wonder that UKIP gained ground after Europe was blamed for UK inadequacies and political mistakes?

    ReplyDelete
  6. It is difficult to imagine the BBC's thinking: it was clear that to support the LibDems was paramount for them in 2010, and maybe that's where they are now, as trapped as is Clegg.

    The BBC has helped to summon up UKIP and the feckless-on-benefits line, whilst liberalism itself has been gradually choked inside the Corporation itself. If high ranking staff hoped this would stave off their being shut down by an incoming Tory government, their strategy could well backfire.

    ReplyDelete
    Replies
    1. Government sends out press releases every day. Economists don't. (And the opposition of the day are being a bit of a wounded dog and not sending out many opposing press releases either.)

      To be sure though, I think the BBC has dropped the ball on investigative & critical journalism on this issue.

      Delete
  7. It's "toe the line" by the way.

    ReplyDelete
  8. Then how do you explain that 14 of the 15 most indebted countries in 2010 were within the EU?

    See here: http://www.businessinsider.com/15-countries-with-massive-deficit-2011-8?op=1

    ReplyDelete
    Replies
    1. The link you post doesn't say that. If only because deficit is not debt, and then two of the 15 are not even European:

      #4 Japan Deficit as percent of GDP: 8.3%
      #3 U.S.Deficit as percent of GDP: 8.9%

      to be comprehensive, there is a link at the end to indebted countries, but if that link was the one you intended to post, it still fails. Japan, Singapore, Sudan, Iceland, Jamaica, Zimbabwe, Saint Kitts and Nevis are not EU members

      Delete
  9. I agree with Simon, except that there was one possibly valid reason for austerity, namely that inflation has been on the high side for most of the last five years. And the government / IMF could have argued that it’s not wise to raise demand when inflation is well above the 2% target. However, instead of using that possibly valid argument, they used the collection of nonsensical arguments to which Simon rightly refers.

    ReplyDelete
  10. Sequence Greek maths defined Plato no escape poisson bound dementia scriptoid Black Hole Roman alphabet foceable export to Italy Then invade england with high Voltage alphabet language trojan Prophet behind in england wall HADRIAN with liar gaseous phonics Carthaginian. Receive complaint from JESUS. Ignore and burn books spin and rinse continue with Paradise gaseous language satan debt money lending tables ill and Freudian id ROMULAN well Founded; Export liar Alphabet to new world experiment. Claim that Renaissance occurred and continue with script debt liar

    ReplyDelete
  11. As far as I can tell, Austerity is written into EU treatise. So wrong barking tree up?
    You need to look at EU policy, rather than split hairs over Westminster neoliberal straightjackets, surely ?
    http://ec.europa.eu/economy_finance/economic_governance/sgp/corrective_arm/index_en.htm

    ReplyDelete

Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time.