I’ve written an article for the New Statesman entitled “Covering up the austerity mistake”. The first half is about the nature of the mistake, which readers of this blog will be familiar with. The second half is how this mistake was effectively ignored by most of the media. Given the size of the mistake - lost resources worth on average at least £4000 for each UK household - calling this a media cover-up is hardly an exaggeration.
Let’s be absolutely clear: this £4000 figure is not just the opinion of one economist. It is based on analysis by the OBR, which the media is happy to treat as authoritative on most occasions. The OBR say austerity reduced GDP growth by 1% in both financial years 2010-11 and 2011-12. With no significant growth in 2012, that means a total output cost of at least 5% of GDP, which is about £1,500 per person or £4,000 per household. The only serious challenges I have seen of this analysis are that the numbers are too small. My own estimate of the total cost of austerity would be considerably higher, but I tend to use the OBR based figure because the OBR rightly has authority.
This cover-up is only part of the story. What I call ‘mediamacro’ continues to portray the economy as the Coalition’s strong card, yet all the data suggests this has been the worst recovery on record, with an unprecedented failure of living standards to rise. The combination of supposed competence and terrible outturns can only be sustained through a series of interlinked macroeconomic myths. Mediamacro - and particularly the political commentators who either perpetuate or fail to challenge these myths - have created an alternative reality, where a return to average growth rates during what should be a recovery period is treated as a triumph, and where stagnant productivity is either ignored or celebrated (by praising rapid employment growth).
That the governing parties want to cover-up such a big mistake and create this alternative reality is understandable. They enjoy the privilege of having at least half of the print media available to create and promulgate the myths that allow the cover-up. But myths cannot be created out of thin air. To get the majority of the remaining media to perpetuate these stories requires that they have some link to reality - what I call a half-truth, but which is really a much smaller fraction of a truth.
As a result we have the bizarre situation that this last five years has been terrible for the average person’s living standards, but nevertheless a majority think the government is relatively competent at managing the economy. This paradox can only be explained by the widespread belief in a set of interlinked myths supported by the media. It should be the task of the non-partisan media to expose myths rather than sustain them, and failure to fulfil that task diminishes our democracy.
As this is so central to the election, I want in each of the next 8 days to discuss a particular macro myth: how it springs from a half-truth and interlinks with other myths, but why it is clearly not supported by the facts. (Apologies to non-UK readers whose interest may be less direct, but I hope you understand that occasionally I really should be parochial. Normal service will be resumed shortly after 7th May.) Each post will be short, with one diagram at most, and easily accessible to non-economists. It is really important that the facts they contain get across to as many as possible.