Or perhaps more accurately, he’s being confusing to us about austerity.
What he wants to tell us is that the Tories are Bastards. Because they’ve cut the amount of our money that government spends on nice things. Plus, obviously, a pony. Except he then tries to use macroeconomic arguments to tell us why this is a bad thing. It’s that mishmash that is misleading:
The IFS estimates that by the end of last year, public service spending excluding health stood at just over 8% of GDP, compared to just over 11% in 2007/08. This is the scale of the austerity we have seen. Day-to-day spending on public services, excluding health, is now three quarters of what it was in 2007. Nothing in the budget will reverse that squeeze to any noticeable extent.
Now, maybe that’s a good or a bad thing. Arguable either way and clearly dependent upon political views about the effectiveness or not of an overweening bureaucracy telling us how to live our lives and determined to confiscate our money in the process*.
But that’s not a macroeconomic argument. This is one:
The first reason is a confusion of language. “Austerity” was first used in 2010 as a way of describing the policies of former chancellor George Osborne. His decision to cut public spending during the worst recession since the second world war flouted basic macroeconomics, the Keynesian principle that in a deep recession governments should spend more, and was opposed by a majority of economists. It delayed the UK’s recovery from the global financial crisis by three years, from 2010 until 2013.
When the economy did finally recover, Osborne continued to cut areas of public spending. Rather than a response to the crash, austerity became just another byword for spending cuts.
Sure, OK, in times of trouble blow out that budget deficit. Which is what was done. And, once it’s past, bring that deficit back under control. Which is what was done. To, at least, some extent. Leading to this:
That is the first confusion caused by the phrase “ending austerity”. The second comes when we look at aggregate numbers. Some will argue the state hasn’t been shrunk at all; total expenditure is projected to be almost 41% of GDP, which is nearly 1% above where it was in the financial year 2007/08. Austerity, they argue, is a myth.
Which it is. We’re back to full employment. In fact, the employment to population ratio is as high as it ever has been – since we started measuring it at least. The unemployment rate is back down to below 1970s numbers. We shouldn’t be having a deficit at all. And yet government is still a higher portion of GDP than it was. That’s simply not austerity. Not in the macroeconomic sense at least.
Which is where Wren Lewis is being confusing. He’s asking us to accept the Keynesian stimulate demand in a crisis argument. OK, we will accept that for the moment. He’s then going on to try to tell us that this is the reason why we shouldn’t have a smaller state when not in a crisis. Hey, maybe we shouldn’t have a smaller state when not in a crisis, argue as you will. But the Keynesian argument about what to do in a crisis isn’t our guide to that at all.
Wren Lewis even tells us that this is all about a confusion of language. The problem being that he perpetuates it.
*It might be possible to discern which side of that argument I favour.