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.
