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.
The worst recovery on record you say. Is it really that different from 1975.
ReplyDeleteOne problem with the £4k figure is that it is a comparator with a world that could never have been. There was no possible electoral outcome in 2010 where there was no fiscal tightening by the elected government.
ReplyDeleteDarling promised cuts 'worse than Thatcher.' What Osborne did over this Parliament looks pretty much identical to the Darling plan.
Now, we can argue that the responsibility lies with those who carried out the policy, even if their opponents would have carried out a near identical one. True enough.
But that argument also applies to the failure of bank regulation in the previous Parliament.
What is unacceptable are those who try and have it both ways. Using hypothetical (but unrealistic) hypothetical compararitors on some occasions, plausible "what could have happened" ones on others.
Ok for politicians to do that. Academics, not so much.
I don't. I have no idea how much austerity a Labour government, or a Lab-LibDem pact, would have in practice enacted, and if they had done the same I would be just as critical. I have very good reasons to believe they would have done less (particularly on public investment), and therefore would have made a smaller mistake (i.e. been less incompetent). (Recall Osborne opposed stimulus in 2009.) But why should I choose as a baseline some guess about this? I just follow the OBR.
DeleteOn financial regulation, I have good reason to believe the Conservatives would have made the same mistake. They argued for even less regulation (as they would).
There is another distinction which I think is very important when judging competence. As Mervyn King has said, the mistake on financial regulation was near universal, both politically and among economists who spoke on the matter. Fiscal austerity was not, at least among academic economists. Part of economic competence is taking account of expert advice. If you go against that advice you put your reputation on the line. That is what Osborne did in 2010.
But these posts are about why the media has not held Osborne to account, and how this distorts democratic choice. You seem very exercised by undemocratic independent central banks, but rather relaxed about the media on which democracy depends.
Hugo - Darling may have said "worse cuts than Thatcher" but IIRC this seemed to go very much against Gordon Brown's preferred theme of Labour investment vs Tory cuts. What I also rememberer was that Darling was lauded in the press for doing so, being praised as the sole voice of reason in the Labour government and so on. I also remember this theme being revived frequently with the suggestion that Ed should bring in Darling for some "economic credibility"
DeleteWith hindsight it looks like the kind of spending Gordon Brown wanted before Darling forced him to compromise would have ultimately been the best option.
"You seem very exercised by undemocratic independent central banks, but rather relaxed about the media on which democracy depends."
DeleteBecause one is exercising state power without democratic mandate, whilst the other is not.
The general 'mediamacro' thesis seems to me to be paranoid rubbish.
If we look at the prominent economics journalists that there are, Duncan Weldon and Paul Mason in the broadcast media, Martin Wolf or Chris Giles in print, is it really plausible that these people have just bought into a Tory austerity narrative? If you know anything about them at all, that doesn't seem very likely. As someone who watches Newsnight, Channel 4 and reads the FT, it isn't my impression.
Are there any economics journalists at all who cannot grasp that a tighter fiscal policy will, all other things being equal, lead to lower growth? Who are these idiots?
Who are the economics journalists who have bought into 'expansionary fiscal austerity' as an idea? We might be able to point at some in the US, but in the UK? Who?
The real objection seems to be to either those you disagree with (the Telegraph obviously, people like Warner or Heath hardly hide their small state agenda) or with Peston because what he says on the 9 o'clock news is so compressed (out of necessity).
Talk to a scientist about the quality of reporting and commentary on scientific news.
Frankly, the economists have got it lucky.
As a regular reader, you will know when I think certain economic journalists are departing from reality. But as I said in my post (!!): Mediamacro - and particularly the political commentators who either perpetuate or fail to challenge these myths...
DeleteSH
DeleteTwo things.
1) The media chuckle-fest when EM "forgot the deficit" gives an indication of just how facile the media coverage is. Still in thrall to the Deficit Uber Alles meme.
2. How many economic commentators have you heard take on the assertion that "Plan A has been a success"?
Those two issues are what should be discussed in Lecture 1 of Recent Maxroeconomics101. And yet our media is unable or unwilling to even begin to engage with them.
These are Really Simple Concepts. Your analogy with science reporting totally misses the point. We're not asking commentators to explain the detail of String Theory or how anti-cancer drugs work. We're asking them to be as clued up as anyone who has a cursory interest in the subject is, and to communicate basic facts to their viewers and readers.
Perfect timing!
DeleteEvan Davis has broken down this evening and got stuck on ranting at Miliband "What will the deficit be in 2020? Deficit! Deficit! Deficit!"
1, He did forget to mention the deficit, and immigration. No need for scare quotes. He was talking without notes, gave out the text, and then forgot those passages. It was a story because it looked like a Freudian slip: ignoring the issues that were and are hard.
Delete2. You think Labour's fiscal plans are clear?
I don't. That was the point of this line of questioning.
(For the avoidance of doubt the Tory ones are clear, but insane. They know they will have no majority with which to implement them.)
3. That there is a conspiracy by the media that needs to be overcome by a doughty few who are really 'in the know' was a myth that bedeviled the left in the 1980s. Here it is again.
4. "How many economic commentators have you heard take on the assertion that "Plan A has been a success"?"
Lots. You are being paranoid. Plenty in both broadcast and print media do this.
Paranoid? The fact that lots of commentators have castigated the bloodletting quack for not being a very good bloodletting quack gives Anonymous reason to be afraid.
DeleteLet's be absolutely clear: the £4k is a particularly feeble piece of 'whatifery'.
ReplyDeleteNow, if you want to produce a credible figure you will need some kind of reference.
If, in 2010, you had said that by following the coalition's policies, inflation would be x, GDP y and unemployment z in 2015, and you were CORRECT, then your view of what would occur if different policies were applied would carry some weight.
Just saying that 'economic orthodoxy says so' carries very little value.
Have a look at where 'economic orthodoxy' predicted we would be:
http://www.telegraph.co.uk/news/politics/georgeosborne/6224723/Tory-public-spending-cuts-could-push-unemployment-to-5-million.html
You don't like George Osborne. We get it.
If you want credibility, use your theories to predict an outcome and we can judge the results accordingly.
Economic orthodoxy says fiscal austerity in a liquidity trap reduces output. That has been tested around the world since 2009, and it has been vindicated. No one can predict what can happen to the economy in an unconditional sense (http://mainlymacro.blogspot.co.uk/2014/08/conditional-and-unconditional.html), just as a doctor cannot tell you that overeating will always lead to a heart attack. But as far as any economic theory can be vindicated, events since 2009 have vindicated this bit of macro orthodoxy.
DeleteWhat happened to UK productivity (and hence employment) is a puzzle, but you need to say why that should mean that we ignore what the evidence says on fiscal policy. Are you claiming that austerity caused labour productivity to flatline as well as delaying the recovery?
Is low productivity really such a puzzle?
DeleteHow much of the pre-crash 'productivity' was actually economically useless activity from our financial sector in the midst of the largest credit bubble of all time?
Also, consider how the public sector contributes to GDP. Even if a public employee generates no useful output, his costs are valued as his productivity. Thousands of public sector jobs have been lost, and public sector jobs tend to be relatively highly paid.
Also, we have imported thousands of workers from overseas who find that relatively low-value work in the UK is preferable to the situation in their home country.
What really matters is where we go from here.
Is our high employment, low inflation situation a stepping stone to increased prosperity, or is it just another mirage created by temporarily easy money?
Are we really 'rebalancing the economy' or just propping up a collapsing bubble.
It would be useful to see some predictions from economists so we can verify their theories.
Anonymous: "Even if a public employee generates no useful output, his costs are valued as his productivity." Conversely, when her output is probably far higher than her pay (government statisticians, public health epidemiologists, primary schoolteachers?), the measure of output is still the wage. A cheap shot.
DeleteJames, I don't think we have reduced the number of primary teachers.
DeleteI should hope that the jobs we have jettisoned are in the lower productivity range.
Great article, Simon. My only quibble is where you say "Apologies to non-UK readers whose interest may be less direct...". No apologies needed, in that the rest of the world is plagued by the same macromedia myths.
ReplyDeletePut another way, the rest of the world (scarcely believable this) are as stupid as we Brits!!
I would like to second that, Ralph. I look forward to Simon's commentary over the next 8 days.
DeleteI would cavil at the 'political commentators' being to blame.
ReplyDeleteI see the economics correspondents as not doing their job properly, substituting a Davos-man City-led discourse focused on 'money' and 'business' in lieu of economic discussion that is at the centre of the political commentators' misunderstandings.
There are many of us doing "mediamacro" who want to make these points. But unless you are given the right to write op-eds (and we all know the reporter rarely gets to) stressing such "wonkish" facts is seen as ideologically-charged. We can of course quote economists such as Mr. Wren-Lewis as to provide balance, but not much more.
ReplyDeleteMy point being: The focus on mediamacro reporters is largely unfair.
I do not want to be unfair. I have no axe to grind here - I'm just a social scientist with a puzzle to solve, which right now is rather important. So why do you think these myths survive? Why are facts (e.g. there was no sign of a financial crisis in 2010) seen (by whom?) as ideologically charged?
DeleteMainly Macro20 April 2015 at 09:28
DeleteCorrection:
" I'm just a socialist scientist..."
Financial newspapers are written to be read by markets. And economists at financial institutions supply a certain view of the world, in which a government is treated like a household.
DeletePolitical parties have also bought much of this "easier to understand" narrative (the Labour Party being the clear example) of government profligacy and are supplying us with these lines.
As a reporter, my job is to balance what people say, and the voice of academic macroeconomists (even if considered mainstream) is one amongst many. And yes, I do know that fair reporting is not finding the mean of two opposing arguments, but editors will never allow mediamacro reporters (which often know what they are talking about) to draw their own conclusions swim against the tide.
Bottom line: this "mediamacro view" you rightly attack is propagated not by the people who follow the actual macro stories but by editors and op-ed writers who view the world through their own (polarized) prisms. So you might want to put the pressure on them instead of the reporting.
Thanks for this - I think it is a useful discussion (for me at least).
DeleteI have never thought that the mediamacro problem is because the collective of economic journalists do not know what they are talking about. I have talked to very many, and know it is not true. It is the collective output that I criticise.
I have sometimes tried to ask where the problem comes from. In my LRB article, for example, I also emphasised the role of economists working for financial institutions.
When I criticise particular individual journalists, I try and do so only to those who do have the status and authority to 'swim against the tide'. (Occasionally I slip up.) I try to be polite.
As to more general pressure, I'm afraid I cannot do what you ask. First, I suspect most editors or op-ed writers do not know or care what I say. (Although that does not stop me sometimes taking the latter on.) Second, I do want to ensure that - as far as they are able - reporters acknowledge the view of academic macroeconomists. In a sense, that is a big part of what this blog is about. When it is appropriate, I always want economic reporters to say what the view of large sections of academic economics is. If you can think of other ways that the influence of academic economists on mediamacro can be enhanced, please let me know.
In short, don't take it personally - just keep us in mind as you write!
Indeed, I never meant to say I took this personally or that you are anything else but polite in your criticism.
DeleteI just meant to clarify that in this case, as you yourself seem to have noticed, spin seems to triumph over knowledge. It might be due to the complexity of the matter for most editors or simple political influence.
A small suggestion I might offer: Banks and brokers often send commentary research notes in response to economic releases or political events. We mediamacro often use those to color our articles or call up the analyst in question. Politicians also provide us with statements.
While blogging is definitely a great way to add to the public debate, maybe a similar way of reacting to the news and provide journalists with insights more directly would allow for these points of view to feature on the news more often.
For example, when public finances data is released, all market commentary flowing into my inbox focuses on the figures themselves. Political spin focuses on whether the Chancellor did meet his self-imposed targets (even the left talks about that rather than the underlying issue). If academics were to sometimes provide their own insight timely (that is: "further austerity wasn't needed in the first place no matter how the PSNB came in") we might see some progress.
But I do realize it's a lot of work which isn't really the academics' job.
Yes, I can see how your suggestion would help. But as you say, no academic is going to have the time to do this. I wonder if there is a networking solution for this - I'll give it some more thought.
DeleteSimon, thank you very much for tackling this head-on. The world needs more of this sort of honesty. And NGDPLT.
ReplyDelete-Ken
Talking of mediamacro, even the Guardian is still intellectually imprisoned by it:
ReplyDeleteRead this comment below by Larry Elliot today on the SNP's Manifesto bid to stop austerity.
"Second, the Bank of England and the financial markets will have to be relaxed about the abandonment of austerity. If they take fright, interest rates will go up and any positive impact on growth from saying no to further spending cuts will be offset by the negative impact of higher borrowing costs."
The inflationista zombie marches on…
Prof. Wren-Lewis,
ReplyDeleteYou say
"Let’s be absolutely clear: this £4000 figure is not just the opinion of one economist. It is based on analysis by the OBR".
Unfortunately, the links you give are not detailed enough to lead to the OBR's statements which you say confirm your figures.
Could you help?
http://budgetresponsibility.org.uk/wordpress/docs/Forecast_evaluation_report_2014_dn4H.pdf
DeleteChart 2.10.
As I have mentioned here before, for those on the street and in contact with those at the bottom, the unemployment/employment figures and the fall in productivity is no mystery at all. A significant percentage of those classed as employed are not working a 35 hour week, but much less, and what they do get varies from month to month. This applies to the some of those who have sought out self-employment. This, in reality, often means they can earn more £100 per week and in so doing keep themselves out the clutches of the DWP with its, as they see it, making applications for jobs they either will not get or will not get paid a wage for doing. Then there are the zero-hour contracts and the 900,000 sanctioned each year. I know of people who claim to be self-employed who do 10 or so hours per and live of their wife's earnings (which at around £500 - 600 per week) makes claiming Jobs-Seekers' allowance at £70 -80 per week or sickness benefit payments not worth the risk of being forced to work six months for 'no money'. The same applies to parents who have seen their son forced to undertake countless training courses and unpaid jobs, without getting a permanent or regular paid employment - I know of several, with both parents working, earning, say, £1200 per week tell their son not to worry about 'signing-on' as we'll give you the £80 - per week. The same applies to unemployed professionals, with a spouse working. They just can not bare being sent through hoops by 'spotty teenagers' who clearly no nothing about finding work for professionals. As I wrote, when last I made the above points, the present system of recording numbers in work (or out of work) is no longer relevant to Britain's new more flexible working arrangements; perhaps, hours working would be more appropriate. Of course this is based on my own assessment of how things appear to be playing out around me.
ReplyDelete. With respect to the perceived media coverage of the degree of austerity debate. Even if it is possible to explain why most major news outlets put out pro-austerity coverage, it's much more difficult to explain away why they do not present an alternative economic policy. The first can be put down to an economic preference, some might state predicated on ignorance, while the latter has to be put down to very low journalistic standards (or is it over powerful editors/owners). Or are all those economists (33 out of 50, if my memory serves me well) who responded to a CMR survey, reported on this blog, not stating there is a credible alternative? worth debating.
Your description of the labour market matches mine where twelve hours a week contracts by reputable employers are a touchaway from zero hours. And many parent unwisely subsidise their children, forgetting each year another clutch of young people enter the labour market, Human nature is a good starting point for the herd mentality of balance the books rhetoric and its reporting. Think of the hassle Peston got when reporting the Crisis.
DeleteGearing was a problem before the crisis in households, companies and financial markets? Greece's liquidity is a problem for the Greece economy? I feel the task is to explain why in the particular case of the UK Government more borrowing would be better over the next Parliament. What are the benefits and why are politicians' fears unfounded? Hopefully the next few blogs will make the case that the sustainability of public finance will be improved by a more expansive policy.
ReplyDelete" all the data suggests this has been the worst recovery on record"
ReplyDeleteOK, and that's what Republicans in the US say. Krugman replies to them (e.g; in 2012 before the last election)
http://krugman.blogs.nytimes.com/2012/06/11/reagan-obama-recovery/
"So, more than four years ago I predicted a very slow recovery. Why? Because recessions like those of 1990-91, 2001, and 2007-2009 have very different origins from recessions like 1974-75 or the double-dip recession of 1979-82. The old recessions were more or less deliberately created by the Fed via tight money to control inflation, which meant that you had a V-shaped recovery once the Fed decided that we had suffered enough and loosened the reins. The new recessions all reflected private-sector overreach, which is much harder to make up for."
Look, you guys have to have some coherence.
Also, Labour was responsible for the first two years of this "worst recovery" on record. So while a good line, I think most Brits will blame Labour rather than Conservatives.
The story is very coherent. The coalition government undertook large scale austerity - indeed they put it at the centre of their macro programme. That delayed the recovery. Simple cause and effect. Now of course other things may have delayed the recovery as well, but austerity's impact was clear and large.
DeleteI'm talking about your line "worst recovery". How is that line pertinent when, for instance, Krugman argues of course he saw long ago that this recession/depression was going to be bad because it involved private-sector overreach? The private-sector overreach in 2007 was as bad as we've seen, so that would seem to imply that of course recovery should be the worst ever.
DeleteOf course its pertinent when policy helped cause it. If I had said we had the worst recovery and it is all down to the government you might have a case, but I have never said that.
DeleteBut this post is about the media. I would have no problem if the dominant media narrative was 'what an awful recovery, but it may not all be the governments fault'. That is not the dominant narrative. Instead the dominant narrative is 'the economy is doing great - why isn't the government reaping the benefit?'
I would like to help you Simon, really I would. Politically I'm on your side. OTOH, you say " a return to average growth rates during what should be a recovery period is treated as a triumph." Can you show me a prediction where *you* said that there would be a return to x% growth rate six months before it happened? I mean, Krugman does this as well. As soon as an austerian economy picks up (even though I would call the UK more a mean-spirited Keynesian rather than an austerian economy), he says, Well of course that's supposed to happen! But he has never predicted when beforehand. In January 2015 he is lambasting the Euroland economies as mired in depression; in March 2015, once the news is better, he's saying of course the euro economies are doing better because look at this chart of government spending from 2013. It's always post hoc. So apparently a return to average growth eventually is normal, but clearly there is a difficulty in the timing. The timing is uncertain enough where it can't be predicted. So maybe the fact that the UK economy returned to average growth rates *at the time it did* is a triumph. The only thing you can do to counter this narrative is to predict correctly. But economics is a complex system, and you, and other economists, can't predict correctly often enough to gain a reputation as scientists. So why should anyone believe your counterfactuals? or give them more weight than air?
DeleteThe problem with the UK economy isn't its growth rate, but the inequality.
No serious economist does macro forecasts unless they are paid to, because 'predicting correctly' is not possible. But that does not negate economics as a science. You could apply your arguments equally to doctors.
DeleteOn the specifics, I did write this: http://mainlymacro.blogspot.co.uk/2012/02/when-growth-returns-prediction.html
Here's another Krugman quote: "The proposition that financial crises change macroeconomic outcomes is surely one of the big things we’ve learned in recent years."
ReplyDeletehttp://krugman.blogs.nytimes.com/2012/10/17/financial-crisis-denialism/
Why haven't you learned that?
Oh my...
DeleteWhat Krugman has also said, many many times, Is that one significant change has been the way the zero lower bound hampers monetary policy. That's precisely the reason why fiscal policy has become relevant and powerful.
Seriously, Anon, what point do you think you are making here? Speaking of incoherent...
As a non-Uk guy I appreciate you're fighting the good fight. In America we have the Washington Post (I won't mention Fox News, because it's too obvious) and the Post is barely better (see Dean Baker's blog).
ReplyDeleteI would comment on a larger issue:: with mediamacro, it is easy to become very cynical about media and in turn about politics and political participation. But if one falls into cynicism and apathy the dissemblers win. And ordinary people lose.
That's why blogs like this are important.
" You could apply your arguments equally to doctors."
ReplyDeleteFirst, I try to avoid doctors. Secondly, I'm afraid economists do not even compare to doctors. I could argue on the theoretical level, but that would take too long. Instead, I'll simply point out that people by and large trust doctors; people by and large don't trust economists. Economists are like doctors - from the 14th century.
The methodological issues faced by the two compare, which was my point in response to your 'cannot predict' argument.
Delete"The methodological issues faced by the two compare". That's a formulation which is meaningless. Any two things have similarities; any two things have differences. Again, doctors are by and large trusted; economists aren't. You need to ask yourself why, because that will tell you why counterfactuals by economists have no weight (and should have no weight) in political discourse.
Delete