Henry Farrell on economists and austerity

Henry Farrell has an article in the Washington Post that links a forthcoming paper by him and John Quiggin with a debate that several bloggers have been involved in over the role of academic economists in promoting (or otherwise) austerity. The paper is very rich in historical detail, but the line he takes in the article is that politicians went with fiscal expansion when economists appeared united in their advice, but the switch to austerity began when economists appeared more divided.

I tend to agree with Kevin Drum in this: he says that basically politicians did what they wanted to do, and economists were simply used to provide some kind of cover for politicians’ decisions. This is the argument I make in my General Theory of Austerity paper. The clearest case of this is probably the UK. George Osborne opposed the fiscal stimulus in 2009, and what changed is that he became Chancellor in 2010. So in this case there was no change of view, just a change in who was in power.

The example which fits Farrell’s case much better is Germany. He argues that German politicians were persuaded to conduct stimulus in 2009 by the (surprising) unanimity of their own economists, but switched to austerity when German economists reverted to type. On this he may be right. But even here I think you can tell a different story, which stresses what politicians were most afraid of. In 2009 they were (rightly) concerned that we might be seeing another Great Depression, and so their instinct was to follow their economic advisors who had exactly the same fear. By 2010 it appeared that this fear had been averted, and now a new concern (for both politicians and austerity inclined German economists) arose over European debt.

In the case of Germany, therefore, the story is one of ‘events, dear boy, events’. In the US and UK it was that Republicans and Conservatives gained enough power to enact the policy they wanted to implement all along. The policy was what I call deficit deceit: reducing the state using fears about the deficit as a pretext. You could perhaps argue that the Treasury and the Governor of the Bank encouraged George Osborne, but I think he would have done it anyway: he was never one to let economics get in the way of achieving a political goal.

But as Drum says, it is not all gloom for economists. To quote: “If we had responded to the 2007-08 financial crisis the same way we did to the 1929-32 financial crisis, we'd still be waiting for a rerun of World War II to pull us back to normal.” I get very annoyed when people ask me what economists have done to deserve respect over the last decade. We avoided another Great Depression, that’s all. It may have been politicians top priority, but we told them what needed to be done, as Farrell makes clear.

But when Farrell suggests that austerity could have been avoided if only economists had stayed united, I think he is wrong. If you view 2016 as an experiment to see if policy can really ignore the united view of academic economists, the result is that it can. While it is important to hammer home what a mistake austerity was, and that it was never the policy recommendation of the majority of economists, the key question is why on occasion that often overwhelming majority can be so easily ignored on issues economists know more about than anyone else.           

Will Trident be Corbyn’s undoing?

and why Trident is not like austerity

Not being a Labour Party person, I’ve not until now thought much about what Corbyn should do about the Trident issue. (For non-UK readers Trident is the UK’s independent nuclear deterrent.) On a personal level I have never heard a convincing argument for keeping Trident, and a great many bad ones, and it is a very large amount of money. So unless anyone convinces me otherwise I would happily votes against keeping it.

Labour leader Jeremy Corbyn is firmly against Trident, but current Labour policy and many Labour MPs strongly hold the opposite view. It is a far more fundamental issue for Labour MPs, with deep roots, than any debate about Syria. (Postscript: this LRB article by David Runciman is well worth reading.) This post/article from Steve Richards of The Independent, coupled with the recent Labour reshuffle, suggests it may define Corbyn’s leadership.

I have written in the past that Corbyn’s election by Labour Party members was in good part a response to the inept drift in policy that the other three candidates were associated with. (As Jolyon Maugham says, it may be unfair on the non-Corbyn candidates that they were so clearly associated with this failed strategy, but elections are often unfair in this sense.) I suspect the many Labour MPs and commentators who think that Corbyn got elected because most party members prefer purity to government do this because they do not want to admit how hopeless their own electoral strategy clearly was. I have talked about this before, but Chris Dillow does it better.

The implications are that if in the few years a rival candidate emerges who seriously looked like they could beat the Conservatives while remaining close to the policies of the Blair/Brown government (minus Iraq and City regulation, obviously), I suspect they could easily win against Corbyn if the Corbyn/McDonnell combination looked like it was both incompetent and unable to lead more than a small number of their MPs.

That is why I have also written that Corbyn/McDonnell are likely to play a long game: to adopt for now policies that the majority of Labour MPs can unite behind, and try and gradually change the platform once they had shown that they could competently lead this majority (which means after 2020). As a poll disaster could still ruin this strategy, what they should also do (but I have always doubted that they would do) is focus on improving the Labour party’s spin machine. (Notions that Corbyn would automatically galvanise disenfranchised working class voters seem problematic for various reasons. The fact that almost no one in the media supports the current Labour leadership means that more, not less, energy has to be put into getting their message across.)

You can see why trying to change the Trident policy might go against that strategy of playing a long game. Damian Carrington, who has done more work exposing the government’s flooding débâcle than anyone I know, recently tweeted: “when @UKLabour shd have been holding Cameron to account for huge failings on #flooding, they put on a late Christmas pantomime”. It is pointless to say it is not his fault but that of the Labour MPs and media, because these are facts that Corbyn has to work with.

Please note that I’m not arguing that Trident might be better left as a battle to be fought on another day because most voters want to keep Trident. Voters views on the issue of Trident are not as clear as some Trident supporters like to pretend, and any poll that does not make the opportunity cost clear in any question (how many less teachers, nurses …) is meaningless anyway. The Conservatives are going to argue that Labour threaten national security whatever Labour’s actual policy is as long as Corbyn is leader. I am arguing that anything that breaks the long game strategy is not in Corbyn’s own interest. Remember also that Corbyn’s choice will have no influence on what actually happens to Trident before 2020, because the Conservatives will win any vote in parliament.

Now someone might say I’m being inconsistent here, because I would not apply the same argument to the macroeconomic policy of austerity. Is this because I have a deep professional interest in macroeconomics but not in defence policy? It is a good point, but my response would be this. If Labour under any leader agreed to follow Osborne’s fiscal charter, they would be going down exactly the same road as the parliamentary party seemed to heading before Corbyn was elected - the road to nowhere. Or as John Harris put it, they were “in danger of shrinking into meaninglessness”. Their ambivalence on the austerity issue under Miliband/Balls (having a sensible policy but trying not to talk about it) helped lose them the election for a variety of reasons I have talked about before.¹ Austerity, not Trident, was a key reason that Corbyn was elected. 

The Trident issue may therefore be critical for Corbyn. He would obviously like to campaign in 2020 on a manifesto that clearly pledges to scrap it, and there may even be electoral advantages in clarity. But if in doing so he alienates so many Labour MPs that the only image in voters minds for the next few years is Labour disunity, he may lose his support among the majority of party members, who actually meet those voters on the doorstep. Compared to getting this choice right, fixing his economic policy right must seem easy.

1 My previous posts have focused on Labour’s huge tactical failure: the only area before the election where the the Conservatives had real strength was economic competence, and how this was based on a false narrative that Labour failed to challenge. I have briefly talked about the demise of the European left more generally in terms of ‘political capture’ by the dominant elite’s narrative: some more articulate thoughts are discussed by Henry Farrell here.