Berfrois

The Dead Hand of Austerity; Left and Right

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Flooding near Royal Armouries, Leeds, 2015. Photograph by Alan Newman.

by Simon Wren-Lewis

Those who care to see know the real damage that austerity has had on people’s lives. From those needing care who now get so little, to those waiting longer for hospital treatment, and those whose homes might not have been flooded without the cuts from 2011. There is nothing unusual about the UK in this respect: austerity (cuts in spending that are either mistimed or unnecessary) causes harm, wherever it is imposed. But the political cost has also been huge.

This is true in the Eurozone, but in this post I want to focus on the UK. The cost on the left could not be greater. Austerity and the reaction to it were central to Labour losing the election. The Conservatives managed to pin the blame for Osborne’s austerity on Labour, and as the recent Beckett report acknowledges (rather tellingly): “Whether implicitly or explicitly (opinion and evidence differ somewhat), it was decided not to concentrate on countering the myth … ” It was also central in the revolution of the ranks that happened subsequently.

Austerity is a trap for the left as long as they refuse to challenge it. You cannot say that you will spend more doing worthwhile things, and when (inevitably) asked how you will pay for it try and change the subject. Voters may not be experts on economics, but they can sense weakness and vulnerability. If instead you restrict yourself to changes at the margin, you appear to be ‘just the same’.

I think many of those on the centre left still do not see this trap. There are some problems you cannot triangulate around, but have to tackle head on. Here is a recent example from Rachel Reeves. Much of what she proposes, when she talks about securing the necessary investment in flood defences for example, makes total sense, but it also tends to cost money. Rather than confront Osborne’s unnecessary cuts, she talks about a failure “to demonstrate that we understood that dealing with the deficit and controlling public spending are the precondition of effective progressive government.”

The urge to move on, and not talk about the dry subject of the public finances, is quite understandable and not confined to the parliamentary Labour party. Here is Mariana Mazzucato giving a brief summary of her excellent innovation agenda for Labour (or indeed any political party that is not hamstrung by a neoliberal romantic view that technical advance is all down to the entrepreneur and the state just gets in the way, a view completely destroyed by her excellent book). I was struck by the juxtaposition of the following two sentences:

Likewise, it is time to move on from the debate over austerity to a new conversation about how to build smart, mutually beneficial public-private partnerships to fuel decades of growth.

For starters, we must invest in education, human capital, technology, and research.

But of course it becomes so difficult to achieve that investment when the dead hand of austerity is demanding cuts from everything it touches.

That dead hand is not just left handed, but touches the reformist right just as it does the left. Some regard David Cameron’s speeches that talk about reducing the causes of poverty and social deprivation as just window dressing, but I agree with Raphael Bahr that these come from a genuine desire on his part to be remembered as a socially reforming prime minister. Yet as a result of austerity such speeches seem ridiculous now, and will only be disregarded by history: meaningless when set aside the reality of the poverty and harm caused by government actions. Here is a self explanatory chart from the IFS.

There were genuine hopes on all sides that Universal Credit (UC) might achieve the aim of simplifying the benefit system, and thereby reduce the number who fail to claim benefits they are entitled to and need. But as a result of austerity, and those cuts to tax credit that the Chancellor was forced to postpone, UC will now be seen as a way of cutting benefits and will be either extremely unpopular and/or be quickly killed. It would be useful to be able to assess what aspects of the health reform brought in by the coalition worked and which did not, but I suspect all that will be lost in the chaos caused by underfunding.

So the dead hand of austerity kills hope of reform from both left and right. The years of austerity will be seen as wasted years, when no new progress was achieved and plenty that had been achieved in the past setback. Recovery from recessions need not be like this, and indeed has not been like this in the past. They can be a time of renewal and reform: if not from a credit squeezed private sector then at least from government. And it could have been like that again, because there was absolutely no necessity to embark on austerity in the depth of a recession.

Those on the right may say well at least we are getting a smaller state. But attempts to force people to in effect spend less on health, education, justice and even a welfare state, are not durable for more than a decade or two. It will be a hollow victory.

In the US and most of Europe the obsession with austerity is coming to an end. It is still killing Greece and holding back Germany, but elsewhere deficit targets are either being achieved through growth or quietly ignored. Yet in the UK that dead hand continues, seen or unseen, to dominate policy and debate. And with its architect set to become Prince Minister and large parts of the opposition still too timid to challenge it, it looks like another five wasted years lie ahead for us.

Piece crossposted with Mainly Macro.


About the Author:

Simon Wren-Lewis is Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College.

  • William Mitchell

    Since austerity does not further the ends of either the right or the left, the question should be asked: whose ends does it further? Looking at results, the only viable candidate seems to be the financial industry. Austerity redirects funds from public expenditure to payment of debt, increases excess savings by the wealthy, and stifles demand. All of these mean that more money moves to and through the financial industry. No wonder that this industry continues to flourish.