Britain’s harmful “quack” economic cure

Editorial from the New York Times, Oct 14th.

For a year now, Britain’s economy has been stuck in a vicious cycle of low growth, high unemployment and fiscal austerity. But unlike Greece, which has been forced into induced recession by misguided European Union creditors, Britain has inflicted this harmful quack cure on itself.

Austerity was a deliberate ideological choice by Prime Minister David Cameron’s ruling coalition of Conservatives and Liberal Democrats, elected 17 months ago. It has failed and can be expected to keep failing. But neither party is yet prepared to acknowledge that reality and change course.

Britain’s economy has barely grown since the budget cuts began taking effect late last year. The most recent quarterly figures showed the economy flat-lining, with growth at 0.1 percent.

New figures released this week reported Britain’s highest jobless numbers in more than 15 years. Independent analysts expect unemployment — now 8.1 percent — to keep rising in the months ahead. The government has kept its promise to slash public-sector jobs — more than 100,000 have been lost in recent months. But its deficit-reduction policies have failed to revive the business confidence that was supposed to spur private-sector hiring.

Drastic public spending cuts were the wrong deficit-reduction strategy for the weakened British economy a year ago. And they are the wrong strategy for the faltering American economy today. Britain’s unhappy experience is further evidence that radical reductions in federal spending will do little but stifle economic recovery.

A few years of robust growth would go far toward making swollen federal deficits more manageable. But slashing government spending in an already stalled economy weakens anemic demand, leading to lost output and lost tax revenues. As revenues fall, deficit reduction requires longer, deeper spending cuts. Cut too far, too fast, and the result is not a balanced budget but a lost decade of no growth. That could now happen in Britain. And if the Republicans have their way, it could also happen here.

Austerity is a political ideology masquerading as an economic policy. It rests on a myth, impervious to facts, that portrays all government spending as wasteful and harmful, and unnecessary to the recovery. The real world is a lot more complicated. America has no need to repeat Mr. Cameron’s failed experiment.

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Incidentally, here’s a report about that Observer letter penned by 100 leading figures (incl economists) telling Osborne he needs a Plan B – Plan A has caused disaster (as was widely predicted).

Here are my thoughts on the “quackery” charge. As I’ve mentioned previously, the one thing to ask about any major Tory economic policy is: “Cui bono?” – who, primarily, benefits? And the answer is always exactly the same: the very rich and/or big business (or at least what they perceive to be in their self-interest: obviously it’s not in their interest to screw the economy as they appear to have done).

I am open to persuasion that some right-wing economic policies are in the best-interests of the nation. But I can’t see there’s much evidence to support any such policies. At best, the evidence leaves it unclear whether any given preferred right-wing policy is better (and I notice that quite often the case “for” turns out to be articulated by people from “think-tanks” that are, in effect, little more than PR companies for the rich/big business guys that fund them).

Once we apply the “Cui bono?” test, it’s very hard to avoid the conclusion that what primarily drives Tory economic policy is not evidence, per se, but what the rich and powerful perceive to be in their self-interest. Who, of course, ain’t necessarily even that bright.

The “evidence” is then gerrymandered and cherry-picked to justify their preferred policies. Those who question it are accused of “outdated” thinking.

That is, indeed, quackery.