In 2010, David Cameron and George Osborne told us that there was no alternative to a program of austerity on a scale not seen since the 1920s. They said that it was necessary to tackle the deficit and debt first in order to get growth later.
The evidence is mounting, almost daily, that austerity is not working. Targets have been abandoned. There is bad news on unemployment, inflation and the standard of living. The country is on the brink of a possible triple dip recession. The IMF calls for Plan B. The UK’s credit rating has been downgraded twice.
As for the defining goal of the government, deficit reduction is stalled while the debt rises inexorably. Before the Crash of 2007/8, the UK’s debt was 36.2% of GDP, which was not excessive by historical standards. After the Crash the debt increased dramatically so that it was 53.4% of GDP by May 2010 but at that time the economy was growing. The economy has hardly grown at all since May 2010 and the debt now stands at 73.5% of GDP. Remember how the Tories used to shout down any critics as “deficit deniers”? These figures explain why they don’t dare do that now.
Cameron and Osborne always have an excuse when things go wrong. They often blame the poor state of the Eurozone which is the UK’s main export market. This argument has a number of flaws. Principally, the Eurozone is following the same policy of austerity. It is not working there either.
Those who said in 2010 that the Deficit Reduction Plan would prove destructive and self-defeating are being vindicated. The Tories economic policy has things in precisely the wrong order. It makes more sense to get growth first and that will ensure you can tackle the deficit and debt later.
The number of supporters for the policy of austerity is shrinking. Regrettably, however, much of the British press seem intent on sticking with Cameron and Osborne until the bunker at the end. Perhaps they confuse what is good for them with what is good for the country. The proprietors, editors and commentators across the national media all belong to the top 1% who, almost alone in the country, are doing as well as ever.
When Cameron and Osborne said that there was no alternative to austerity they were wrong. But were they guilty of deliberate lying – “conspiracy” – or did they really believe they were telling the truth when they were not – “cock-up”?
Some people have always suspected that Cameron and Osborne cynically used the pretext of deficit reduction to give them political cover to dramatically cut the size of the State. This has been the dream for some Tories for decades. The problem for them has been that the British people value their schools, hospitals, libraries, police, army, parks etc. This is why the Tories did not dare seek an election mandate to cut the State. They are doing so under the guise of deficit reduction.
However, if one gives Cameron and Osborne the benefit of the doubt and say they are guilty of cock-up rather than conspiracy, then how is it possible that they could make such a terrible mistake?
The most likely explanation is that they allowed their judgement to be distorted by confirmation bias. This is the tendency for people to subconsciously select evidence which seems to support their pre-existing view and reject evidence which undermines it. We all do it, of course, but people entrusted with great power have a particular responsibility to guard against it.
There was an abundance of evidence back in 2010 that their policy of so-called Expansionary Fiscal Contraction would be self-defeating, but Cameron and Osborne rejected it all. Among the most important warning voices were those of Nobel Laureates Joseph Stiglitz and Paul Krugman and the Financial Times commentator Martin Wolf.
When Cameron and Osborne found some evidence that supported their pre-existing views they seized upon it. In January 2010, two Harvard professors, called Carmen Reinhart and Kenneth Rogoff presented a paper called Growth in a Time of Debt. It said what Cameron and Osborne wanted to hear. Osborne on many occasions since then has cited this paper as providing intellectual justification for his austerity policies.
From the beginning there were many criticisms of Reinhart and Rogoff’s paper which argued that high debt destroys growth. One obvious criticism was based on what happened in the UK after World War Two. In 1945 the UK’s debt as a percentage of GDP was over 200%. This did not prevent there being high levels of growth which meant that both Labour and Tory governments were able to steadily reduce the debt to acceptable levels.
Last week, in an extraordinary development, a Ph.D. student called Thomas Herndon forced Reinhart and Rogoff to admit that their paper, which had been so influential, contains major errors. The professors had even missed out some important data altogether.
The professors have had to make a humiliating apology: - “…It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful. We will redouble our efforts to avoid such errors in the future...”
There are parallels between the behaviour of Cameron and Osborne in 2010 and Tony Blair in 2003. The evidence in support of there being no alternative to austerity was as thin as the evidence of there being WMD in Iraq.
Some people think Blair deliberately lied to the British people in 2003, just as some think the same of Cameron and Osborne in 2010.
However, if one takes what Blair now says at face value, he did not deliberately lie as he genuinely thought Saddam had WMD. If so, it seems likely it was his own confirmation bias which clouded his judgement. Blair rejected all the evidence that there were no WMD and, in particular, he seized on the evidence of an Iraqi codenamed Curveball which told him what he wanted to hear. This was despite the fact that there were clear warning signs that Curveball might not be reliable.
Curveball provided dodgy evidence which a politician relied on to do what he wanted to do anyway. For Curveball 2003, should we read Reinhart and Rogoff 2010?