Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 25 April 2015

Mediamacro myth 5: the long term plan

People should by now know the Orwellian character on this government’s spin enough to suspect that if they keep on asserting something, it is almost certainly not true. So it is with the idea of the ‘long term economic plan’. Here is a chart of the original plan for the deficit, and what has actually happened.
UK current budget deficit: June 2010 plans and outturns (per cent GDP).

The government kept their word on reducing the deficit in financial years 2010-11 and 2011-12, in part through sharp reductions in public investment: cancelling repairs to schools, reducing spending on flood defences etc. But that helped kill the recovery, so they allowed deficit reduction to stall.

The 2010 plan put the pace of deficit reduction at the centre of policy making, and the data make it clear that in 2012 the plan changed. Why did mediamacro not call this for what it was. There are two half-truths here. First, austerity in terms of squeezing lots of government departments continued. Welfare reform continued to cause plenty of misery, and food banks continued to grow. So in that very visible sense, the policy of squeezing the state was not abandoned. Second, the Chancellor’s main fiscal rule allowed him to delay austerity in this way (because the form of the rule, since abandoned, was sensible in that respect), so in that sense there was no dramatic change. However in terms of the deficit numbers, fiscal austerity was put on hold in 2012. 

Not making it clear that the plan had changed was a serious failure. If that call had been made, the Chancellor would have had to account for why he had allowed deficit reduction to stall, and that in turn would have established quite clearly that previous austerity had delayed the recovery. Failure to make that call allowed (and continues to allow) the Chancellor to pretend that the delayed recovery was not his fault, when it so clearly was. (Some journalists also got sidetracked in focusing on OBR forecasts, rather than on the OBR’s assessment of the impact of austerity.) Finally not saying that the plan had changed encouraged the ludicrous claim that the 2013 recovery vindicated austerity, which is tomorrows myth.

So this is why the Chancellor keeps on talking about his ‘long term economic plan’, because to admit he changed his plan (as a sensible reaction to the delayed recovery) would open the door to questions about why the plan had changed, and therefore about the damage that austerity had done. It that sense the ‘long term economic plan’ is a key part of the mediamacro myth. 

Previous posts in this series


  1. Not so keen on this one as it is really about presentation.

    First, on the substance you actually approve of Osborne's change of course.

    Second, Balls (and other political opponents of Osborne) didn't and don't point this out either, preferring to keep up the rhetoric of Tory austerity Their motivation is the same as Osborne's, which leads us to....

    Third Osborne's reasons for not saying "sorry we cocked up, and changed course" is clear. He wants to win an election. Some will want our politicians to be saintly in their public utterances. I doubt any potential Chancellor would be saying anything else (cf Balls' silence on Osborne's doing exactly what Balls urged him to do).

    Fourth, it would have been nice, to say the least, if Osborne's critics had drawn this change of course to our attention at the relevant time (ie three years ago). It was only after the recovery became clearly apparent (ie the summer of 2013) that the usual suspects noticed.

    1. This post is about the media's collective inability to point out that Osborne changed his plan. Your comment seems to be saying that if no political party points it out, you cannot expect mediamacro to do so. I think, if true, that would tell us a lot about the media - that it has just become a means of expressing the political parties views, and not about what is actually happening.

    2. In complaining to the BBC about something else, they took exactly this kind of position. Their response included arguments along the following lines. Nobody else is making this argument, therefore it is incorrect.* Our expert journalist is an expert therefore his view of things is informed by his expert opinion and, therefore, it is reasonable.

      (*The argument was not that we don't have the resources to look at an argument only one complainant is making.)

    3. Simon Wren-Lewis is wrong to say that Osborne changed his plan.

      Contrary to his assertion above, the main element of deficit reduction in the first two years was tax increases, not spending cuts (which were very modest). The subsequent spending cuts have been pretty much exactly what he planned, but tax revenue has been lower than he forecast, hence the deficit did not fall as fast as he planned.

      So he has kept to his plan - it is just that his plan didn't achieve his targets. He would have had to change his plan to do that and clearly he decided not to. Does Simon Wren-Lewis not understand the difference between objectives and strategy?

      Simon Wren-Lewis also says: "Failure to make that call allowed (and continues to allow) the Chancellor to pretend that the delayed recovery was not his fault, when it so clearly was."

      We can debate whether it was his 'fault' all day. But it is not 'clear'. There are other factors in play such as the Eurozone crisis and the fact that the whole world has struggled to emerge from the crash. Simon Wren-Lewis has not demonstrated that another set of policies would have been better (personally, I think that he should have cut spending earlier and to a greater extent and only raised taxes later - and that this would have produced better results, but I cannot prove it just as Simon Wren-Lewis cannot demonstrate that he is correct).

    4. 1) "Contrary to his assertion above, the main element of deficit reduction in the first two years was tax increases, not spending cuts (which were very modest)" Not true. Between 2009-10 and 2011-12 receipts rose by 0.9% or GDP, and spending fell by 2.3% of GDP. In 2012-11, spending as a share of GDP was approx the same as 2011-12.

      2) "We can debate whether it was his 'fault' all day." Fiscal contraction, particularly cuts in public investment, reduce output. That is why the OBR says austerity reduced growth by 1% in both years.

    5. 1) Disingenuous by Simon Wren-Lewis. A fall in public spending as a percentage of GDP is different from a fall in real terms.

      In real (inflation-adjusted) terms the fall was much smaller (around 1.5%) between 2009-10 and 2011-12 (and spending was actually higher in 2010-11 than in 2009-10). Tax rises were a more significant contributor because although tax receipts didn't grow much, they would have fallen without tax increases.

      Indeed, public spending in 2012-13 compared to 2009-10 was less than 1% lower than in the last year of Labour government.

      The 'cuts' were only a fraction of the increase (which was around 8%) in the last two years of the last Labour government.

      2) If you borrow and spend more then of course it boosts GDP figures in the short term, not least because public sector output increase is assumed to equal public sector input increase. That doesn't mean that a real recovery is delayed. I would argue quite the opposite.

      Perhaps Simon Wren-Lewis would like to explain why, if higher public sector spending and borrowing automatically boosts the economy why we couldn't just raise it indefinitely and all become rich? Labour raised it rapidly over many years. Why didn't this work?

    6. So you're arguing that increased gov't spending between 2009-2012 would have *not* delayed a real recovery. Wow, congratulations on agreeing with S W-L and the idea behind deficit spending in a liquidity trap! Deficit spending between 2009-2012 would have increased the speed of the real recovery. Instead we had to wait for the gov't to realise that its deficit reduction plan was delaying the recovery, and to dampen austerity.

    7. No, I made an error in my posting and there is no edit feature.

      Just because GDP looks lower if you borrow and spend less, it doesn't mean that the recovery is delayed. Any fool can increase GDP for a short period by borrowing and spending more - but that doesn't constitute a real recovery.

  2. There is still room on the right of the press for journalists like Fraser Nelson to say that the deficit has not been reduced as Osborne promised; indeed, these few seem to be silently nodded at by their colleagues who like seeing their honesty in action but feel them to be naive when it comes to the practice of intrigue.

  3. Hugo, the comments you made yesterday were pertinent in that they were a well formed argument for stating that the English-Scottish political debate/electoral system is complex and consequently there are several points that can be taken. Today, to be brief, your reputation would have been better served by remaining silent. It appears to me that the main point being made is similar to the one you made yesterday. In that there are various points of view that can be taken and here is my (S W-L's ) view point (though as much of the data is numerical and subject to accepted economic theory it is more decisive in character than political rhetoric). One point, it appears to me, that is made above is that most major media organisations chose to present only one perspective: that of the necessity of immediate deficit reduction. That both Labour and the Liberal Democrats do not point out other alternatives is of acute political interest, and from previous posts your take on that would be of great value. Though for the issue that this series of blogs it is it not that pertinent. As it appears to me the issue being addressed here is getting those alternative economic perspectives across to the public, as in a democracy the ability of the electorate to have sound, relevant and valid policy alternatives is paramount in making a state function at its optimum. A secondary point made above is to pose the question why is it that our national media organisations do not see this as part of their remit or are ignorant of alternative economic policies or believe the alternative economic perspectives are too complex for the electorate to comprehend (or is it the Platonic 'noble lie'?) . As computer programmers often state 'rubbish in - rubbish out' - the quality of the information that the public has at its disposal determines the quality of the government elected. In this respect, at the least, S W-L's blog is pro-democratic, in its production it emphasises that debate is a critical process and adds to the resonance and detail of the debate. To state that important politicians have not entered into this debate on this aspect of economic policy, is merely to add weight to S W-L's argument; though, it is an extremely important political point. My guess on the political aspect is that for Balls to state that Osborne departed from the austerity narrative would be to go against the media's 'standard economic model for debt reduction' and therefore would have put him (and if he sees things that way the party he serves) at great risk of becoming the one whose brave enough , and politically naïve enough to short the 'king's wearing no clothes'. For him it is better to wait for circumstance and those who want to make our
    democracy more effective and economists to do the groundwork first.

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