Monday, October 31, 2011

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.


[end]

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.

12 comments:

Scout said...

I am one of those poor sods who voted Liberal Democrat and ended up with the government we've got at the moment! Mind you, it might be worse if they weren't in the government...

Edward Ockham said...

The idea that big business and the rich and powerful determine economic policy is a conspiracy theory, no?

Stephen Law said...

H Edward

I did not say "the rich and powerful determine economic policy". I said they they largely determine Tory policy. And thus, *sometimes*, economic policy.

Conspiracy theory? I don't think so. It depends on your definition of "conspiracy theory". To a very large extent, the influence is not even hidden. Hence it seems odd to call it a conspiracy. Also, those in a conspiracy must presumably knowingly engage in deception, whereas I am sure many Tories would probably insist, sincerely, that they're just following the economic evidence where it leads.

But even if it were a conspiracy (which I don't think it is) there can in any case be good evidence for some conspiracies - Watergate, Iran-Contra, etc.

Stephen Law said...

PS. Most medical quacks are entirely sincere, of course. They're not deliberate deceivers.

wombat said...

The "cui bono" should be asked of any policy put forward by any political party. The answer is usually "the party".
If it didn't think there were votes in it they would quickly quash it. Whether anyone else benefits from it is largely a side effect.

What is interesting w.r.t. quackery is that in most cases neither the proposer of a policy or its opponents seem to have any interest in setting things up so that the effect can be genuinely measured and hard evidence, for or against its efficacy, gathered. OK there is a fair amount of after the event data gathering and sometimes a bit of target setting (usually so that the thing can be proclaimed a success with much fanfare) but when was the last time any party proposed or any government actually carried out a decent experiment to see if the policy worked? It's as if all the peddlers of quack remedies have an unspoken agreement amongst themselves not to do anything to resolve the issue.

Jim Moore said...

Quackery? No.
Psychopathic behaviour yes.

It's about time the majority of you Poms got together and had a real, non-glorious revolution and removed the venal minority that has oppressed you for hundreds of years.

Edward Ockham said...

OK it’s not a conspiracy (which requires secrecy). But how do you recover from a deficit? You either cut public spending, or you raise taxes, or you inflate your way out (as long as you are not in a currency union of course). Or you borrow more, I suppose, but that simply delays options 1-2, and could cause option 3.

On the issue as a whole, I it is wrong to privatise profits, but socialise losses, which is what has been happening so far.

Stephen Law said...

Edward. No one denies the necessity of cuts. It's the scale of the cuts that's in question - half as much again as even the Labour planned cuts (which were already considered too aggressive by some). What motivated such very large cuts? Why is it that the Tories' preferred "evidence" in this case, as in every other, invariably favours the perceived self-interest of the very rich and big business?

And raise taxes? Except er, for business and the richest who may well get a 10% tax cut. As have corporations.

Wombat. What the Tories do is not always in the short term interests of the party - certainly not party popularity. Lowering the top rate of tax would be damaging, politically, but they'll do it anyway if they can. Why? We all know why.

Stephen Law said...

PS if I sound bitter, I am!

wombat said...

"What the Tories do is not always in the short term interests of the party "

Well no - but as you say politicians are not necessarily smart!
All I am suggesting is that they are strongly motivated to try to do what they believe (not always correctly) is in the interest of the party. More correctly I suppose each individual will do what they perceive is to their advantage - the party machine is set up to harness this urge by carefully allocated promotions, honours etc. ("gongs for the boys!").

Stephen Law said...

"I suppose each individual will do what they perceive is to their advantage"

Really? What about those v rich people who said please don't lower our taxes - it's unjust.

But I think the mindset of many rich folk is: "But everyone just votes for their own self-interest, so why shouldn't I?"

wombat said...

Sorry I was a bit ambiguous there - when I write "each individual" I was thinking there was an implied "politician" or "member of the party" rather than individuals as a broader class.

As to rich people calling for their taxes not to be lowered. There may well be those that do so out of sense of fairness - after all there are a number of rich philanthropists so not all rich people are mean. OTOH the problem with such announcements is their public nature though. How many rich people are doing so because they are either closet politicians or would like to hold political office or just effectively buy the favour and pseudo friendship of the political classes or just impress their peers in some way? How many people choose to pay more tax when they could legitimately pay less? For example by making a point of buying stuff outside the airport rather than in the duty free shop when they travel or opting to put their retirement savings in a straight forward taxable unit trust rather a tax free pension. Are these declarations just a form of conspicuous consumption? "Look I am really rich - I can afford to pay more tax!".


Re Mindset - Are the less wealthy any different? I have been struck in the recent economic travails how few unions have offered to cut hours and reduce pay in order to spread the available work and wages amongst their membership. When, indeed, was the last time you heard a taxi driver complain his taxes were too low?