Henry Farrell has an article in the Washington Post that links a forthcoming paper by him and John Quiggin with a debate that several bloggers have been involved in over the role of academic economists in promoting (or otherwise) austerity. The paper is very rich in historical detail, but the line he takes in the article is that politicians went with fiscal expansion when economists appeared united in their advice, but the switch to austerity began when economists appeared more divided.
I tend to agree with Kevin Drum in this: he says that basically politicians did what they wanted to do, and economists were simply used to provide some kind of cover for politicians’ decisions. This is the argument I make in my General Theory of Austerity paper. The clearest case of this is probably the UK. George Osborne opposed the fiscal stimulus in 2009, and what changed is that he became Chancellor in 2010. So in this case there was no change of view, just a change in who was in power.
The example which fits Farrell’s case much better is Germany. He argues that German politicians were persuaded to conduct stimulus in 2009 by the (surprising) unanimity of their own economists, but switched to austerity when German economists reverted to type. On this he may be right. But even here I think you can tell a different story, which stresses what politicians were most afraid of. In 2009 they were (rightly) concerned that we might be seeing another Great Depression, and so their instinct was to follow their economic advisors who had exactly the same fear. By 2010 it appeared that this fear had been averted, and now a new concern (for both politicians and austerity inclined German economists) arose over European debt.
In the case of Germany, therefore, the story is one of ‘events, dear boy, events’. In the US and UK it was that Republicans and Conservatives gained enough power to enact the policy they wanted to implement all along. The policy was what I call deficit deceit: reducing the state using fears about the deficit as a pretext. You could perhaps argue that the Treasury and the Governor of the Bank encouraged George Osborne, but I think he would have done it anyway: he was never one to let economics get in the way of achieving a political goal.
But as Drum says, it is not all gloom for economists. To quote: “If we had responded to the 2007-08 financial crisis the same way we did to the 1929-32 financial crisis, we'd still be waiting for a rerun of World War II to pull us back to normal.” I get very annoyed when people ask me what economists have done to deserve respect over the last decade. We avoided another Great Depression, that’s all. It may have been politicians top priority, but we told them what needed to be done, as Farrell makes clear.
But when Farrell suggests that austerity could have been avoided if only economists had stayed united, I think he is wrong. If you view 2016 as an experiment to see if policy can really ignore the united view of academic economists, the result is that it can. While it is important to hammer home what a mistake austerity was, and that it was never the policy recommendation of the majority of economists, the key question is why on occasion that often overwhelming majority can be so easily ignored on issues economists know more about than anyone else.