After seven years of austerity in Britain and much of the rest of Europe, even its most ardent advocates are starting to question its effectiveness. If the reality of falling wages, flat-lining productivity, and stagnant GDP per capita isn’t enough to make you question austerity, don’t worry: Luke Doyle is here to persuade LSE students that austerity should be “back on the menu”.
I’ll begin by saying that the reason for why the Conservatives no longer talk about austerity is that, during the five years in which they had, they repeatedly missed their own targets. Starting in 2010, when Osborne declared his intention to eliminate the deficit by 2015 (as Luke Doyle keenly observes, this had not occurred). In reality, while the Conservatives no longer rhetorically emphasise austerity (the word didn’t get a single mention in the Chancellor’s conference speech), austerity continues. Government spending as a % of GDP has fallen from 48% in 2010 to 42% in 2016. In a nutshell, this is austerity maintained- not off the menu. The simple answer to why they don’t mention austerity is that is has not worked. The IMF now predicts Britain will grow even slower than Greece over the next five years, and GDP per capita is lower today than in 2010.
However, more than just being factually inaccurate, and ignorant of the last seven years and beyond, Doyle’s article requires a response because austerity is as flawed now as it was in 2010, and has inflicted unnecessary suffering for too long. Austerity has reduced demand, which in an economy like Britain, where most people work in services, and not for firms that export goods, has had the predictable effect of reducing the demand for labour and therefore wages. It turns out that people who work for the government spend their wages in the economy- what a revelation! Therefore austerity is a contributing factor to the 10.4% fall in British wages from 2007-2015.
Putting to one side- for the time being- the fact that austerity was never off the menu, what compelling arguments does Luke Doyle provide for his point? In his nightmare scenario, the national debt and interest payments rise and rise, and then “the economy will collapse”. That’s essentially it. Never mind that Britain has not run a surplus since 2002, that British national debt was far higher after WW2, that Canada and Japan both have higher debt to GDP ratios, and that the very policy Luke Doyle is advocating has been tried and has been failing for the last seven years.
Rather than provide any evidence for austerity actually working in Britain or elsewhere, Luke Doyle raises the spectre of Greece, just as the Coalition did back in 2010. ‘Stray from austerity and end up like Greece’ is the simple message. Well, as the fall in British wages is even greater than in Greece, in a way we have. Luke Doyle so spectacularly misunderstands what has occurred in Greece that I can only hope it is a deliberate rhetorical ploy to justify austerity; either that or he has not bothered to read a single thing about Greece since austerity was adopted in 2010. As in Britain, ten years of austerity have failed to both reduce the Greek national debt or improve the wages of Greek people.
Just like the coalition in 2010, Luke Doyle promises that “Once a surplus is reached…”, the pain is only temporary, etc… The problem being that this is an unreachable goal. As mentioned previously, in a service-based economy that does not export goods, austerity will not work – it will only reduce demand and consumption. Austerity ends up as a self-fulfilling prophecy: ‘we need austerity today because of austerity yesterday’. This is the negative feedback loop that Luke Doyle wants us to continue. Rather than getting into the messy details of what spending he would reduce, Luke Doyle identifies “swathes” of “Public Arm-Length bodies”, of course un-named and somehow missed by the Conservatives in the last 7 years. An alternative strategy to never ending austerity would be to grow the economy first, through public spending, or to raise tax revenues – two plans at odds with Conservative ideology.
Luke Doyle also glides over how we ended up in this situation of massive public debt in the first place: the excessive lending of banks (triggering the Great Recession) who then asked for, and were given, bailouts: neatly transferring private into public debt. He now warns us that if these same investors and banks consider this public debt excessive, it will “collapse” the economy. To such debt holders one could say that every loan in a free market involves the risk of non-repayment- but that’s another issue.
More fundamental than the debate between Keynesianism and austerity, suppose that Luke Doyle is right, and austerity is not a political choice but necessary to prevent economic collapse. What does this imply about the economy? If the economy cannot provide either rising wages, or adequate public spending (not to mention addressing two issues that are far more important than the national debt: climate change and automation) then it is not working for the majority, and requires serious reforms and new management. Instead, the Conservatives have no solutions apart from more of the same. Instead of addressing these problems, their insistence on austerity, even if they no longer rhetorically emphasise it, shows that they are as ideologically bankrupt as Britain’s public debt. The old saying goes that insanity is ‘doing the same thing again and again and expecting a different result’. By that definition, Luke Doyle’s support for austerity is truly insane.