23 April 2013
If the doctrine of austerity ever had any intellectual respectability, it suffered serious damage last week when the mathematical data behind it were revealed by a university doctoral student to have included blunders in a spreadsheet.
The student had been working on a project set for him by two of his teachers.
The revelation of these errors have serious implications for austerity as a policy.
In practice , austerity has been shown in country after country not to have worked.
In theory , there is now no verified data to support its claims.
In the real world of everyday life, over the past three years the lives of people in countless communities in Europe, the UK, Scotland, Dundee and my own East End ward have been struck by a decline in living standards and loss of jobs, and a future that offered only more of the same, because of the ordeals that austerity has brought.
Another victim of the collapse of the academic integrity of austerity is its dye-in-the-wool supporter in the UK, Chancellor George Osborne.
To summarise what occurred, two Right-wing US economists, Kenneth Rogoff and Carmen Reinhart had written a research paper in 2010 on the relationship between government debt and economic growth .
Above a certain debt-to Gross Domestic Product ratio (90%) , economies would grow significantly less than those with lower debt, they claimed.
As a result, government spending had to be slashed to foster economic growth.
This work of Rogoff and Reinhart took the form of a learned, highbrow theory for George Osborne, and he used it as justification for his huge spending cuts programme.
Thus in 2010, Mr. Osborne said,
“As Rogoff and Reinhart demonstrate convincingly, all financial crises ultimately have their origins in one thing – rapid and unsustainable increases in debt.”
“Perhaps the most significant contribution to our understanding of the origins of the crisis has been made by professor Ken Rogoff, former chief economist at the IMF, and his co-author, Carmen Reinhart…………..the latest research suggests that once debt reaches more than about 90% of GDP, the risks of a large negative impact on long-term growth become highly significant.”
Mr Osborne’s nemesis comes in the form of University of Massachusetts doctoral student Thomas Hernon who was unable to confirm the results of Reinhert and Rogoff.
Further analysis uncovered embarrassing errors such as data omitted from the spreadsheet.
When these errors were corrected the countries that, according to Reinhert and Rogoff, showed an average 0.1 % contraction in their economies showed an average expansion of 2.2 % instead.
Reinhert and Rogoff have since admitted these errors.
Continuing with austerity policies is no long an option.
However, if Chancellor Osborne believes , despite all of the evidence , that he can , then :
By 2017-18, according to the Institute for Fiscal Studies, there will now be 300,000 more jobs lost in the public sector by 2017-18 than have been already predicted .
The total number of public sector jobs to be lost by then is put at 1.2 million.
Last month, the Office of National Statistics reported that :
“Average earnings of employees in the UK have fallen in real terms since 2009.
“Average earnings in real terms are now at similar levels to those of 2002-03.”
Already on the broader international front, the “Independent” reported last month :
“Red Cross food aid reaches highest level since 1945”
“The Red Cross is distributing food aid across Europe at levels not seen since the end of the Second World War, the head of the organisation has said, showing how deeply the economic crisis and austerity measures are being felt by ordinary people.
“At least one million people in Spain alone are receiving food aid from the Red Cross.”