The Economy : Victims of a Fad

Lesley Brennan

7 March 2013

It is always good to have an external examiner from another country who can cast his or her  perceptive eye on the economic condition of Britain, predict what it will look like in a few years , and be vindicated by events.

One such observer has been Paul Krugman from the US, awarded the Nobel Prize for Economics in 2008.

He writes prolifically, and for a lay-person audience , including a blog for the New York Times, “The Conscience of A Liberal

Within months of the Tory-led coalition taking office in the summer of 2010, Krugman took head on the belief that Britain could cut its way to prosperity .

In “British Fashion Victims “ he wrote,

” In the spring of 2010, fiscal austerity became fashionable….. It was more like a fad, something everyone professed to believe because that was what the in-crowd was saying.

“The victims are the people of Britain, who have the misfortune to be ruled by a government that took office at the height of the austerity fad and won’t admit that it was wrong.

“Trendy fashion, almost by definition, isn’t sensible — and the British government seems determined to ignore the lessons of history.

“The British government’s plan is bold, say the pundits — and so it is.

"But it boldly goes in exactly the wrong direction..

“Why is the British government doing this?

"The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state.”

Krugman wrote that in October 2010.

In January of this year, over two years later, he explained why David Cameron’s highly unsuccessful and highly unpopular policy of austerity had been unnecessary in the first place

“ Britain had no particular need to adopt austerity: like every other advanced country that issues debt in its own currency, it was and still is able to borrow at historically low interest rates.

“Nonetheless, the government of Prime Minister David Cameron insisted both that a harsh fiscal squeeze was necessary to appease creditors and that it would actually boost the economy by inspiring confidence.

“What actually happened was an economic stall.

“Before the turn to austerity, Britain was recovering more or less in tandem with the United States. Since then, the U.S. economy has continued to grow, although more slowly than we’d like — but Britain’s economy has been dead in the water. “

Imposing austerity during a recession has gone against the experience of the effectiveness of policies that did not repeat the mistakes that brought on the slump of the 1930s.

Government investment in the economy and social services should not be targeted for heavy cuts during bleak economic times.

The fortunes of the private sector are so dependent for contracts and work from the public sector – schools, hospitals, houses and roads – that decreasing government spending would cost private sector jobs and further weaken the economy.  

However, huge reductions in public expenditure was the solution proposed by the supporters of austerity for all of the troubled economies of Europe.

The untested theory was that such actions would be favourably interpreted by the business sector, send their confidence soaring, and revive economies through private investment.

However, as we have seen , country after country has failed to respond to their recommended treatment.

Paul Krugman’s interest in the UK economy and his analysis of how it has ended in a stagnant state state cannot be dismissed as the work of a political partisan.

He is a US citizen and so cannot vote in our General Election in 2015.

If people of his calibre, and similar minds in this country, advocate an end to austerity policies, and evidence in their favour from credible sources keeps on emerging in ever-shorter news cycles, and evidence from by-elections spells out the political consequences for the Tories, why are David Cameron and George Osborne so determined not to change course with a General Election not that far away in the future?


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