Jun 1 2012

The Great British Mistake

Where are the retractions from austerity enthusiasts

Thomas Friedman--Photo Credit: Thomaslfriedman.com

Thomas Friedman–Photo Credit: Thomaslfriedman.com

When the Conservative-led government in Britain announced a budget plan in 2010 based on dramatic austerity measures designed to lower that country’s budget deficit, the news was greeted by many U.S.-based pundits with enthusiasm: Finally, a major economy was going to apply the sort of medicine that Very Serious People agreed was needed.

The New York Times’ Thomas Friedman (5/9/10) quoted Economist editor John Micklethwait as saying the British vote of 2010 was the first Western election “based on pain”—and it’s hard not to feel Friedman was taking pleasure in the London-based Financial Times’ declaration (4/26/10) that “the next government will have to cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements and take the ax to programs such as school building and road maintenance.”

Friedman presented Britain along with Greece (whose austerity was more thrust upon it) as today’s poster children for the wrenching new post-Tooth Fairy politics, where baby boomers will have to accept deep cuts to their benefits and pensions….

After 65 years in which politics in the West was, mostly, about giving things away to voters, it’s now going to be, mostly, about taking things away. Goodbye Tooth Fairy politics, hello Root Canal politics…. We have got to use every dollar wisely now. Because we’ve eaten through our reserves, because the lords of discipline, the Electronic Herd of bond traders, are back with a vengeance—and because that Tooth Fairy, she be dead.

The Washington Post’s David Broder (10/24/10) praised Conservative Prime Minister David Cameron for “boldly” enacting a “painful” austerity agenda and “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery.” (Yes,that’s how you get a reputation for moderation in D.C.—celebrating the ignoring of expert opinion.)

Broder hoped that the upcoming midterm elections would “provide the opportunity for a similar breakthrough” in the United States:

If Republicans emerge next month with sufficient leverage in the House and Senate to approach Obama with a proposition, they could insist that he “do a Cameron” when it comes to federal spending.

If Obama would only embrace the still-unspecified proposals of his “fiscal responsibility commission”—better known as Bowles- Simpson—which was “expected to emphasize spending discipline over raising revenue”—Broder assured us that would “offer major gains to both parties, and set the stage for another experiment in the British model.”

It’s not as if some of those pesky economists weren’t warning that “premature fiscal austerity will lead to a renewed economic slump” (Paul Krugman, New York Times, 10/22/10), and pointing out “the foolishness of pursuing austerity in the middle of sharp downturn” (Dean Baker, Guardian, 10/25/10). But the general sense in U.S. corporate media was that British budget cuts were a gamble worth taking—and maybe not much of a gamble.

“Cameron’s austerity has the virtue of economic responsibility,” the Post’s Michael Gerson (7/23/10) proclaimed. “It is easy to close a budget deficit with massive new taxes—but it is also massively destructive to economic growth. So Cameron has proposed about four pounds in spending reductions for every pound in tax increases.” Gerson too presented British austerity as a model for the U.S.: “If Cameron’s approach works—dramatically cutting deficits without stalling economic growth—it will be an obvious, powerful example for America and other nations.”

Not embracing this example was not an option, it seemed. The Post (10/24/10) editorialized that “the plan unveiled last week by Britain’s coalition government offers a useful and, in many ways, impressive example of what a serious approach to deficit-cutting entails—and will eventually require from U.S. policymakers.” Likewise, USA Today (10/25/10) opined:

The sheer scope of Britain’s spending cuts and tax increases is a pretty good road map for where U.S. politicians will have to go if they’re serious about getting the budget near balance.

Just less than two years after the austerity coalition’s electoral victory, the British economy was declared to be back in recession, after two consecutive quarters of contraction (BBC, 4/25/12); overall, Britain’s GDP is smaller today than it was in the 4th quarter of 2010, when Cameron’s budget cuts were announced. A graph of British growth alongside the U.S.’s (Reuters.com, 4/25/12) is striking, with two economies on basically parallel paths suddenly diverging as Britain takes a sharp turn into stagnation.

Where are the pundits saying that Cameron was wrong, Krugman was right, and our advice that the U.S. should emulate Britain would have been disastrous?

Gerson has written about the issue a few times since—but with nothing like a mea culpa. He has acknowledged lately (4/12/12) that things aren’t going so well: “British economic growth—now predicted at 0.8 percent for the year—is anemic. So Cameron seeks to encourage British competitiveness by cutting taxes on businesses and upper-income taxpayers.”

Broder is dead—what’s everybody else’s excuse?