A few days ago, I wrote a post called Britain: For the Love of God, Please Stop David Cameron. I didn’t expect much out of it, because my usual audience is predominately American, and many Americans take little interest in the British elections. So I was pleasantly surprised when it went semi-viral in the UK, quickly becoming the most popular post I have written. Naturally, with a larger audience comes more critical (and sometimes just aggressively hostile) comments, and my usual policy of responding to every critical or interesting comment I receive is increasingly no longer practical. So instead, I’ve decided to write this all-purpose response to the most common bad critiques I’ve seen levied at my post. If you’re one of the wonderful people who read my post and deemed it worth sharing, I hope that this post will help you deal with any Tory supporters you may run across who may try to give you grief about it. So let’s get started.
Here’s a short list of the most common negative responses I’ve seen:
- Unfair Comparison: I shouldn’t compare the UK during 2004-08 to 2010-13, or the UK to the US, because there are so many other variables in play (e.g. 04-08 was a boom, while 10-13 was a recovery, the US is a much larger economy, etc.)
- Labour Overspend: the previous Labour government spent so much money that the coalition had no choice but to do austerity. What else could the government have done?
- Labour Bubble: Labour created unsustainably high economic growth by increasing public sector employment, leading to a debt problem.
- Financialization: the UK was more finance dependent than other countries, so it makes sense that it would do worse.
- IMF Retract: the IMF recently praised the coalition government, so this means that it’s retracted all the research I cited.
- Outdated: the statistical relationship between austerity and growth is based on data from the first few years after the crash–surely that relationship no longer holds.
- Greece: without austerity, Britain would have ended up just like Greece.
- Delay: the benefits of austerity were just delayed, in the last couple years the UK has performed better.
- Fraud: cuts to the welfare state are justified because of massive benefits fraud.
- Authority: no one else agrees with me, I’m some kind of radical.
- Bias: all my sources are left-wing and deeply biased.
- Iraq: Labour started the Iraq War, so it can’t be trusted.
- Nationalist: I shouldn’t talk about the UK because I’m not British.
I’m going to try to very quickly and concisely respond to each one of these. Feel free to skip to the criticisms that you think are most compelling or interesting–each time I address a new one, I list the name of the criticism in bold. If you’re on a computer, you should be able to use your finder (Control-F on a PC) to locate them easily.
Unfair Comparison:
The chart comparing 2004-2008 to 2010-2013 is important because it shows that the primary difference in the growth rate is the amount of demand that is supplied by the government:
This shows that the difference is mostly in government and consumer spending, not in investment or trade. This is important because austerity directly reduces government spending and indirectly reduces consumer spending by laying off public sector workers, reducing other public sector workers’ pay, and reducing benefits.
The US to UK comparison is interesting because both the UK and the US have their own currencies (the pound and the dollar). Neither is on the Euro, and being the Euro adds complications because countries that are on the Euro can’t make their own monetary policies–they have to follow what the European Central Bank (ECB) mandates. That said, I also compared the UK to a variety of European countries as well, and in this case I used the same time span for everyone–the UK did not look good, doing about as badly as Spain during the worst years of austerity.
This should shock and appall us–the UK has its own currency, it’s not on the Euro, it should be able to do much better than the Eurozone, especially the weak economies on the European periphery (e.g. Spain, or Italy). I also supplied further evidence from the IMF that austerity has a strong negative correlation with economic growth, and even shared a graph showing this correlation, taking data from a multitude of countries over the same time period:
Unfair comparison? More like unfair criticism.
Labour Overspend:
Contrary to popular belief, Labour’s spending was not at all out of line with historical precedent–once we adjust to account for the size of the economy, it’s clear that Thatcher spent just as much during the 1980’s.
The UK has also run much larger debts in the past–the debt to GDP ratio was higher in the 60’s, and much higher during World War II:
But rather than do austerity, post-war Britain responded to a much larger debt burden by creating the NHS and the modern welfare state. After demobilization, Britain’s increased spending frequently throughout the 50’s, 60’s, and 70’s:
And Britain ran large deficits throughout these decades, sometimes significantly larger than the deficit Labour was running the year before the recession (2007):
Yet Britain’s debt burden fell dramatically between 1950 and 1975. How is this possible? Three factors:
Economic growth–by investing public money in programs that helped grow the economy, Britain was able to grow faster than the debt. While net borrowing only occasionally exceeded 4%, annual UK economic growth frequently exceeded 4% during these decades, neutralizing the borrowing:
Inflation–by running low to moderate inflation throughout these decades (with the exception of the 70’s, during the oil crisis, in which things got out of hand), Britain was also able to reduce the value of the debt in real terms:
Devaluation–because Britain controlled its own currency, it was able to occasionally significantly reduce the value of the pound, shrinking the size of the debt burden rapidly in short periods of time. This also made UK exports more competitive and drove up growth. Harold Wilson famously did this in 1967 (if you look at the debt to GDP graph I posted, the rate of improvement accelerates after 1967). It most recently happened in the early 1990’s, when Britain exited ERM. This brought about a rapid fall in the debt burden:
But the government was able to increase spending at the very same time:
By creating strong economic growth, mild inflation, and occasionally devaluing, governments can reduce even very large debt burdens without resorting to austerity.
The markets understand this power. Governments that control their own currencies and can devalue enjoy much lower borrowing costs than Eurozone countries:
See that little red box way off to the right? That’s Japan. Japan’s debt dwarfs that of all other countries–relative to its economy, it’s larger than Greece’s. But because Japan controls its own currency, the markets don’t worry, and Japan borrows even more cheaply than Britain does. The British could have run significant stimulus for years without so much as approaching the Japanese’ level of indebtedness, and the evidence suggests their borrowing costs still would not have risen substantively.
And let’s also remember that as I said before, austerity makes things worse by decreasing the rate of economic growth, making it harder for the government to shrink the debt relative to the size of the economy. The IMF’s research is very clear on this. Labour’s spending was not out of the ordinary and could certainly have been handled without austerity. If the UK could overcome the debt burden imposed by World War II without austerity, it defies reason that this blip would be too much to handle.
Labour Bubble:
As we saw above, UK spending under Labour was no higher than it was under Thatcher:
While public sector employment did increase under Labour, it merely increased to the same level it was at in the early 90’s under the conservatives. The private sector added many more jobs under Labour than the public sector did (about 3.5 million private as opposed to about 0.7 million public):
Additionally, GDP growth under Labour, while better than it has been under the coalition, was not high by historical standards:
There’s no reason to think that economic growth under Labour was sustained exclusively or even predominately by public sector employment.
Financialization:
It is true that the UK has a bigger financial sector than most countries:
This did mean that Britain got hit harder than some places by the recession. But Britain is not the most financialized major economy in Europe–what about the Netherlands? The Netherlands outperformed the UK during Britain’s heavy austerity period even though it was more financialized than the UK:
Once the coalition slowed down the austerity, Britain easily passed the Netherlands:
The UK was aided in its effort by the Dutch parliament, which decided to pass a major austerity package right when the UK was slowing its own austerity program down. Now it is the Netherlands that wears the austerity dunce cap. The research is clear–more austerity means less growth:
IMF Retract:
It is true that IMF head Christine Lagarde praised the UK economy earlier in the year, claiming that “it’s obvious that what’s happened in the UK has worked”. But this is a very ambiguous statement–does Lagarde mean that the initial austerity worked, or that the coalition’s decision to briefly stop and then restart the austerity at a reduced speed produced good results? Remember, the coalition did the fastest austerity in the first year–after that, it dramatically slowed the policy down:
A few days before Lagarde’s comments, the IMF released a report that undermined the coalition government’s further debt reduction plans, claiming that planned welfare cuts would undermine growth and make it more difficult to close the deficit. The IMF also did not retract any of its other research on austerity–indeed, the recent report is consistent with the claims the IMF made in its previous research.
Lagarde’s own words are also vague. She said that the government had adopted:
smart fiscal policy – what I meant by that … is a set of policies that are actually targeted and tailored to the state of the economy. And what clearly has been demonstrated in the past is that the UK authorities are capable of adjusting to the economic reality in order to provide the right balance of spending cuts, revenue raising and in the order, in the proportion and in the pace that is appropriate to the economy.
Notice the phrases “tailored to the state of the economy” and “in the pace that is appropriate to the economy”–these phrases make it sound like it’s more likely that Lagarde is praising the coalition for reducing the pace of the austerity, given the reports and research the IMF has published. The coalition does deserve credit for that, but the further cuts it has planned will make it even more difficult for the UK to balance the books.
Outdated:
Here’s another graph showing the relationship between austerity and economic growth–this graph is more up to date than the one I’ve been using:
As we can see, the relationship still holds.
Greece:
The UK is very different from Greece because the UK has an independent currency (the pound) while Greece is stuck on the Euro. This means that the UK can devalue its currency while Greece cannot. Devaluation is an important monetary tool–it allows states to rapidly shrink the size of their debt relative to the size of the economy. The UK has used devaluation to shrink the size of its debt on a number of occasions (some of which I discussed in more detail in “Labour Overspend”). Greece can’t do this, and this makes it much harder for Greece to shrink the size of its debt without either defaulting or doing austerity. This is reflected in the two countries’ borrowing costs. The UK’s borrowing costs have been steadily falling for decades, and are near a record low now:
By contrast, it is very expensive for Greece to borrow, and during the height of the Eurocrisis (so far), it was totally impractical:
This is because investors know that the UK can devalue its currency and avoid default even if its debt burden becomes very large, but Greece is on the Euro and is much more constrained. Countries that control their own currencies enjoy much lower borrowing costs than countries on the Euro:
Indeed, that little red box in the corner is Japan, a country that runs an immensely large debt but continues to borrow at extremely low rates because it controls its own currency.
There are other differences as well. For one, Greece is ridiculously corrupt. Greek citizens dodge taxes and Greek officials profiteer on a scale that is unheard of in the UK. Additionally, Greece is running a massive current account deficit because its wages are not competitive. Britain is also running a current account deficit, but Britain’s is much smaller:
This means that British exports are more competitive and Britain doesn’t need to send as much money out of the country to pay for imports. This makes the UK economy much stronger than Greece’s even independent of the currency issue.
But most importantly, as long as Britain retains the pound, it retains the ability to devalue its currency, and this means it is not possible for Britain to be forced into default. The UK not only is not Greece, it cannot be Greece as long as it stays off of the Euro.
Delay:
As we’ve discussed, there was a significant slow down in the rate at which the coalition government carried out its austerity policy:
I say that British growth improved because the coalition slowed down the austerity, but how do we know that I’m not wrong and that the initial heavy austerity is not the cause of current British growth? We know because economists and social scientists have looked at many countries around the world and conclusively established that austerity negatively correlates with growth:
We also have research from the IMF stating that this correlation exists and explaining what causes it–the multiplier effect. When the government eliminates a dollar of spending, the person who would have received that dollar must also reduce spending. For instance, if the government cuts a teacher’s salary, that teacher might not buy a new car, which means lower sales for the car dealership, the car manufacturer, and the other industries that serve the manufacturer. If the government cuts many people’s salaries (or worse, fires people), this can add up to a significant amount of money that is not moving through the economy, resulting in losses for many businesses. These businesses may try to remain solvent by cutting wages or laying off their own workers, thereby decreasing those workers’ purchasing power, and so on in a negative feedback loop. These businesses also have less income to pay tax on, so the government collects less revenue, worsening its fiscal position. The IMF talked about that, too.
Fraud:
In 2012-2013, fraud only accounted for 2.1% of the welfare budget. In other years the figure is as low as 0.7%. People who make the fraud argument are deeply misinformed about the basics of this debate. Research shows that on average, British voters think that 27% of the welfare budget is lost to fraud, which is wildly inaccurate.
Authority:
The argument from authority is a logical fallacy–even if no other scholars agreed with me, readers should evaluate my argument on the strength of its merits. That said, my position is by no means radical. Paul Krugman, the Nobel Prize winning economist from Princeton, regularly speaks out against austerity. So does Joseph Stiglitz, another Nobel winner. A survey of 33 prominent economists show that only 15% agreed with the coalition’s austerity measures, with two thirds disagreeing, and most of those two thirds strongly disagreeing. Stimulus is similarly popular with economists–only 5% of US economists surveyed deny that the Obama stimulus package was good for the economy. Add to this the IMF research supporting the point, and it’s pretty clear that if there is a consensus among experts, it favors me, not my opponents.
Bias:
Many conservatives appear not to trust Oxfam as a source because Oxfam cares too much about the poor. I even saw one commentator claim that relative poverty is not important at all. This is not true–I recently wrote a post detailing all kinds of evidence that relative poverty and relative inequality contribute to a variety of serious social problems. But in any event, even if you exclude the Oxfam results, it’s clear that ordinary people have been negatively affected by austerity–my data on real wages in Britain comes from the government:
The rest of the data in my original post came from a variety of undeniably reputable sources. We’re talking about Eurostat, the IMF, the Office for National Statistics, the Economic Policy Institute, and so on. If you’re going to call these sources into question, you’d better have clear evidence of wrongdoing–and if you have that evidence, you should contact a journalist, because that would be big news. These are the sources professional researchers trust.
Iraq:
The Tories supported the Iraq War too. Do we really believe that a Tory government wouldn’t have joined the Bush administration in Iraq? Do we really think that without British support, America would have stayed out of Iraq? I think the answer to both questions is clearly “no”. In any case, Iraq is a foreign policy issue, and it has nothing to do with the efficacy (or lack thereof) of the coalition government’s austerity policies.
Nationalism:
I love and care deeply about the United Kingdom and its people. I didn’t write this to hate on Britain or the British people. I wrote this to help. On other issues, I sometimes criticize American policy and point to British policy as a superior alternative–off the top of my head, I’ve done this with both health care and gun policy. I’ve chosen to study in the UK for undergrad (and will return for my PhD this fall) because Britain has a really great university system that has some significant and important advantages over the one in my own country.
Too often, our political disputes get too domestic. We stop paying attention to the examples of other countries. Our debate becomes disconnected from the global debate. In the United States, I see this all the time. In the Europe, the research is settled on global warming, on gun control, on government health care, and so on, but many Americans refuse to learn lessons from European countries. When I mentioned the positive policies Britain and other countries have to offer, my fellow Americans sometimes dismiss the positive outcomes other societies have seen and continue to insist that American culture is so distinct and so exceptional that what works in Europe could never work in the states.
Britain is now acting like the United States sometimes does. It’s ignoring the international research on austerity, becoming too consumed with its own narrow domestic debate. The international research is clear, but too many British people are living in denial, presuming that Britain is the exception to the rule. When my country denies the efficacy of single payer or gun control, I hope that foreign writers step up and point out our error. When I see Britain making the same kind of mistake with austerity, I step up and point it out not to insult or deride Britain, but to help it be a better place for all of its people.
I’m glad that foreigners care about American politics. I’m glad they’re not apathetic, and that they want my country to be a better place. So I reciprocate that, I care as much as I can about as many places as I can–especially Britain, a country I love studying in.
Benjamin Studebaker 