Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 18 May 2015

David Smith's gotcha quotes

In response to this post, David Smith of the Times tries a bit of gotcha journalism. Chris Giles tweets “A justly irritated @dsmitheconomics reminds @sjwrenlewis of some of stuff he has written and forgotten”. Only one problem: it is nonsense, and slightly embarrassing nonsense at that.

The facts are not really in dispute. A number of economists have drawn attention to the fact that the original austerity plan to eliminate the (cyclically adjusted) current deficit by 2015-16 was changed in 2012. David Smith wants to argue, as the government does, that “the government has stuck pretty much to its consolidation plan”. Call this claim X. What economists argue from the data could be described as not-X.

But how can you make claim X, when the data clearly shows that the pace of deficit reduction between 2012 and 2015 was slower than was originally planned? I argued in my post that David sets up a third claim, call in claim Z, that austerity was “abandoned in 2012”. By then showing, correctly, that the deficit was reduced between 2012 and 2015, David shows claim Z is false, and attempts to suggest (erroneously) that claim X is therefore true. It is crucial that the term 'abandoned' here is unqualified. Claim Z could not mean temporarily abandoned just for a year, or put on hold, because the data is quite consistent with that claim. Nor do I think I’m mistaken in my reading of what claim Z was. In the last two sentences from his original post David writes: “Did the austerity stop? No, and the economy's stronger recovery in the second half of the parliament ran alongside continued austerity.”

In my post I argued that claim Z was a straw man. I had not seen anyone make claim Z. David responds first by quoting a Guardian leader that uses the word abandoned in an unqualified way, and I must admit I do not read Guardian leaders. But he then provides two quotes from Paul Krugman and two from myself where we say austerity in 2012 was ‘put on hold’, that the government ‘essentially stopped tightening fiscal policy before the upturn’, or that austerity was ‘temporarily abandoned’. This is quite different from claim Z, involving complete abandonment. So they are hardly support for his straw man.

It is also pretty clear David knows this. He writes “I am not sure when the suspension or (temporary) abandonment of austerity Simon refers to is supposed to have come to an end.” That is cover to translate what I wrote into claim Z. But just a few sentences down from the first of his quotes from me I write: “followed by a projected return to austerity from 2014 onwards”. Whoops.

If all this seems a bit silly to you (as it does to me), you need to understand the bigger picture. Why is David (alongside others) so keen to argue that the government stuck to its consolidation plan, when the data clearly suggest otherwise? Well I think I know why the government wants to pretend that there was no change of plan in 2012. Because the moment you admit that the pace of deficit reduction was slowed (by action or inaction), people will ask why, and the obvious answer was that the original plans were hurting the economy and delaying the recovery. Most economists and the OBR know this, but the government has tried very hard to make sure that knowledge is not disseminated more widely.    


21 comments:

  1. I was disappointed by Smith's defence of the government's actions. It seems that he is tied up in a cultural affiliation to the Conservatives preventing him being able to exercise professional objectivity. It is also worth noting that he has been pressing hard for interest rate rises for a long time - at times sounding certain that they are going to happen. Maybe his frustration has got the better of him.

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  2. And so well done Osborne for taking the correct decision in 2012, and having the courage to change course?

    Even if through gritted teeth?

    (FWIIW, I think your various statements although not necessarily inconsistent are open to the critical interpretation of Smith.)

    Can we all now get on with looking forward? That is the natural position for the economist anyway. Arguing about the fiscal stance in 2012 looks a bit stale now. By 2020 it will be ancient history.

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    1. British productivity is less than it was in 2007; GDP per capita is less. Osborne certainly mitigated the mess that he created. Could have been worse is the appropriate response and not well done in my humble opinion.

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    2. Yeah forgetting the lessons of the Great Depression worked really well.

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    3. Did we forget them?

      I would have thought that the monetary and fiscal response to the crash showed that we didn't.

      Indeed, Osborne's own behaviour (as opposed to the rhetoric that even seemingly sensible economists get suckered by) shows that he didn't either.

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  3. to be fair to osbore, he can merely be censored for the mishandling of a crisis which was inherited and not one that he and Cameron created.

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    1. Brilliant. You mean censured?

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  4. Even if there are 50 shades of austerity, isn't it the case that standard macro predicts an eventual recovery? (I.e. Many years after it should have happened, and to a new, potentially permanently lower, output level?)

    I really can't see the growth data of the last 2 years or so as any sort of vindication, given that following a recession, growth rates should be (and empirically have been following every other recession) higher than average.

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    1. Exactly. Austerity wastefully delays and weakens recovery and and has a regressive distribution profile, but it doesn't prohibit recovery.

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  5. Magnus, by the way, i think that there will be an eventual recovery but there may be hysteresis, which is lost production that may not be recovered. But, as I said, it could be worse.

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  6. Perhaps it is the re-writing of history which continues to stick in the craw with government spending 2010-2012 (the Alesina period) ?
    Largely the UK does it is told (no matter the rosette colour).

    So, putting austerity mistakes (or design), I'd like to understand what is driving UK GDP increases (we know gov spending is up some £150bn since 2008 (£731.4bn est 2015, £582.2bn 2008). So that is some stimulus.

    In addition, the current account deficit.
    Does that suggest inflows of capital, and if so, where is it invested?
    Would you be able to look at what is driving GDP increases given the lack of domestic productivity increase since the global financial crisis please?


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    1. Some people still work in productive jobs (says the guy posting on the internet).

      Oh, and google 'Imputed Rent'. A concept which to this physical scientist makes the virtual particles behind the Casimir force seem rock solid by comparison..

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    2. http://www.3spoken.co.uk/2015/04/uk-sectoral-balances-q4-2014.html?m=1
      Household debt and deficit spending.

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  7. Sad to see David Smith scraping the barrel like this. The once mighty Times has become a bit of a parody - almost a tabloid.

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  8. Something of the apocryphal wife of the Bishop of Worcester in all of this from the Times and FT:

    ‘My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known.’

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  10. Glad to see your commentary is hitting home.

    More power to your elbow!

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  11. The articles, the economists, this post, your comments, it's like rearranging the deckchairs on the Titanic.

    The world is sinking, the UK is somewhere near the bottom of the pile.
    The next 30-40 years will be hellish, and none of the *experts* see it coming.

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  12. Indeed, both Chris Giles (once sat next to him in a select committee barely able to continue himself when the then Labour Treasury team were getting a grilling) and David Smith are cheer-leaders. Such a shame and so damaging that the real experts have less sway in influencing public option than journalists/political propagandists.

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  13. GO stuck to his consolidation plan, but gowth has been weaker than anticipated in 2010. The consolidation therefore only reduced the deficit by half instead of eliminating it as planned.

    GO did not increase the consolidation to eliminate the deficit completely. Thats very different from saying there was a U turn or even a pause.

    GO's original plan may have worked if the rest of the world particularly Europe were not also ensnared in no/low growth. Or if the UK export sector could cut the mustard. It cuts both ways, if SWL had been in charge at no 11 and mounted a fiscal expansion when the rest of our trading partners were in contraction what would have happened? A massive increase in imports and even more immigration.

    To expand the economy with a fiscal stimulus when everyone else is contracting takes some fine control. You would have to target the spending very carefully selecting which sectors and projects could be done without sucking in imports. You would have to know a lot about the constraints and bottlenecks in the UK economy. There is no one in the Treasury with this level of knowledge or understanding. All they can do is turn the tap on or off.

    It's all hopeless.

    So long and thanks for all the fish.

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  14. Interesting to read comment above about interest rate rises. Indeed, Smith has been saying for some time that pay growth will accelerate, but this has simply not happened. Again, probably seeking to influence rather than point to any evidence of any prospect of pay growth which has simply not happened as predicted by the vast majority of economists (not journalists). Never let the facts get in the story is the old saying isn't it?

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