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.
