British Austerity is a Myth, Despite What the Keynesians Say

The protests in Spain and Greece have highlighted the push for “austerity” being made in the Mediterranean. Although much attention has been put on the PIIGS and their attempts to overcome the euro-crisis recently, many other European countries, such as the UK, who are in a comparably better position have been attempting their own version of “austerity”. That some European countries have decided to cut spending in response to the financial crisis has irked Keynesians like Paul Krugman, who takes particular pleasure in pointing out the failures of supposed austerity. Despite what many would have you think there has been no serious reduction in spending in the UK and taxes have increased. 

Over at the London-based freemarket think tank, the Institute of Economic Affairs, Philip Booth outlines the absurdity of the “austerity” rhetoric which has somehow dominated British political discourse. According to the British government’s own budget (on page 86) from 2011-2012 to 2016-2017 public sector expenditure will increase from £647.3 billion to £708.6 billion. It is only thanks to inflation that the public sector will see a growth rate of less than -1 percent. These are hardly the “savage cuts” that the left in the UK keep referring to, which is a shame considering that the leader of the Liberal Democrats, Nick Clegg, realized that such measures would be needed in 2009. When entering government the Tory-led coalition ring fenced the NHS and international aid from cuts, hardly a policy decision that could be attributed to fans of austerity. If you look at a visual representation of the Britsh budget it is immediately apparent that any proponents of austerity would target the NHS and welfare spending.

Indeed the size of the government as a percent of the economy has increased in comparison to Labour governments. As Ruth Porter, also of the IEA, explained, public spending in the UK is 47 percent of GDP. At the beginning of Tony Blair’s premiership public spending was 38 percent of GDP. If the British government wants to really practice “austerity” the least it could do is aim for spending to be lower than it was at the dawn of a socialist government. 

Veronique de Rugy, senior research fellow at the Mercatus Center and occasional Reason contributor has written on what a farce the European claims of austerity are. She spoke to Reason TV about Europe and austerity back in May. 

What is perhaps the most frustrating trait of Keynesian arguments is that they are unfalsifiable. Stimulus didn’t work? Well then you obviously didn’t spend enough. Growth left wanting? You didn’t borrow enough. Thankfully there are some politicians who are talking about the disjoint between the British government’s rhetoric and the economic reality. Unfortunately, they are a minority. If Europe has any chance of overcoming the mess it is in then politicians have got to start being honest. In Europe government spending is not shrinking, at best governments are just growing a little slower. 

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  • Ken Shultz||

    But it does emphasize how bad it really is that the idea of austerity can't even get a foothold.

    These people in the UK aren't reacting to actual budget cuts--they're rejecting even the idea of austerity.

    It's the same thing here in the U.S. The American people so snowed. If and when inflation rears it's ugly head again sometime over the next four years, and Barack Obama's personality cult gets reelected?

    It's gonna be really ugly. These people can't even imagine budget austerity. They dismiss budget hawks like climate change deniers.

  • Gladstone||

    Well yeah if people find phony fiscal conservatism to be horrifying they are certainly not going to accept the real thing.

  • ||

    I'm imagining what the Democrats will do with the budget crisis. What do you think?

    Cuts to defense spending are a given.

    Higher taxes are a given. They'll disguise them as other things, claim they won't raise taxes on the middle class, but they will.

    Price controls on medical care, extremely likely. Rationing boards are going to be a hot issue so I think they'll avoid them. Most probable scenario is they price-control health insurance rates. Which will put the insurance industry out of business, which is all to the good from their perspective.

    And lots and lots of money-printing.

  • Paul.||

    Cuts to defense spending are a given.

    I'm not sure I even see defense cuts as a given with Democrats.

    Rationing boards are going to be a hot issue so I think they'll avoid them.

    No they won't, they'll just call them something sufficiently obfuscatory.

    In 1962 Life magazine[6] published an article on the Seattle hemodialysis screening committee which Life magazine dubbed the "Life or Death Committee". The need to ration the life saving treatment led to the development of biomedical ethics. In 1964, Dr. Belding H. Scribner's presidential address to the American Society for Artificial Internal Organs discussed the problems of patient selection, termination of treatment, patient suicide, death with dignity, and selection for transplantation. In 1964 the Seattle Artificial Kidney Center under the guidance of Dr. Joseph W. Eschbach launched one of the world's first Home hemodialysis programs.[7]
  • Ken Shultz||

    They'll do the same things we did the last time we had inflation.

    Yeah, price controls will come in.

    Expect to see the fed even more politicized than it is--interest rates will be remarkably low given the rate of inflation.

    It's gonna be a mess.

    But, obviously, we can't vote for Romney. ...because Romney thinks there are too many parasites out there.

  • ||

    Yeah, and he hired that Ryan guy who wants to "save Medicare".

  • Enjoy Every Sandwich||

    It's a shame I don't still have that "WIN" button from the Ford days.

  • Calidissident||

    Haha Romney thinks there's too many parasites out there? Why would we think that he believes that? Oh cause he said it? Mitt Romney's word is worth jackshit. The closer we get to this election, the more you turn into Tulpa-lite

  • Ken Shultz||

    If you don't think Romney would superior to Obama in a high inflation environment, then you're out of your mind.

    At least Romney isn't hostile to the idea of austerity like Obama is.

  • ||

    So are Spain's proposed cuts real cuts or not?

    http://www.cnbc.com/id/49189525

    Yesterday Feeney gave a list of austerity measures for Spain but i do not think he told us the "slashed by 8.9 percent for next year" part.

  • Jerry on the road||

    So what they do is simply put expenditures for December 2013 off by one month into January 2014. Problem solved!

  • ||

    IIRC a similar thing happened in Argentina when it had it's financial crisis. The Argentine government made a feeble attempt at free market reform, while continuing to run public spending over 40% of GDP, and then they had a financial crisis. But because they been pretending they'd market policies the Left decided that it was a big failure of "neoliberalism".

    Same thing is going to happen in the US. Probably would happen if the Republicans half-hearted medicare reforms were adopted. They would fail, and the economy would collapse anyway, and everyone would blame Republican "austerity" and libertarianism. Better to let Obama run the country into the ground so we can blame the collapse squarely on the left-wing engendered entitlement society.

  • Gladstone||

    Problem is they are still going to blame Republicans and libertarianism for the economic collapse.

  • Gladstone||

    Look at Herbert Hoover.

  • ||

    What, they're going to say that Obama was a libertarian?

  • Gladstone||

    Blame Republican "obstructionism" and Obama for not spending, taxing and regulating enough. Also wreckers, saboteurs and kulaks.

  • ||

    Hmm. Some will, undoubtably. It's so much harder to argue that if your party controls the white house though.

  • tarran||

    Hazel, do you not read Tony's talking points? Or watch the news?

    They already are doing just that. They honestly believe that as long as they lack a supermajority in the Senate, everything that has gone wrong is entirely the Republican party's fault.

    These people are completely delusional.

  • Jerry on the road||

    Who was in control of Congress between 2007 and 2011 again?

  • Paul.||

    Problem is they are still going to blame Republicans and libertarianism for the economic collapse.

    Done and done.

  • Gladstone||

    Look at The Cultural Revolution, The Great Purge. Or California and Detroit. The Statists sure did admit they are (or were) full of shit.

  • The Other Kevin||

    These are the same people who consider an increase in a budget item to be a "cut", as long as the increase is less than they wanted. So yes, to them, this really is austerity.

  • Gladstone||

    When did this start? Reagan?

    Looks like it has spread everywhere. Is "deregulation" going the same way?

  • ||

    Is "deregulation" going the same way?

    Bush with a republican controlled congress filled whole libraries with new regulations and the left say his deregulation caused the financial crisis.

    So no it is not going the same way...it is already there.

  • ||

    What is perhaps the most frustrating trait of Keynesian arguments is that they are unfalsifiable.

    This is not true. You can look at countries that do have balanced budgets and points in history in which budgets were balanced and see the difference.

    In fact there is even a book that does exactly that:

    http://www.amazon.com/This-Tim.....0691152640

    Sometimes i think Feeney is a secret Keynesian...his arguments against Keynesian economics are so weak they may as well not even exist.

  • ||

    They are unfalsifiable in practice if not in reality. Because the defenders of Keynesian economic stimulus will always argue that when it doesn't work, they just didn't go far enough.

  • ||

    Bullshit. Click on the link. All sorts of spending/debt schemes have been attempted over 800 years in all shapes and sizes.

    They failed.

    That by definition is factual falsifying data countering the Keynesian claim.

    I know you think it is all sort of cleaver to say "argue that when it doesn't work, they just didn't go far enough."

    But it is a complete bullshit and a bullshit argument.

    "Oh no! They made a claim we can't combat...boohoohoo."

    It is not only completely weak and defeatist but is proven wrong by the very facts of 800 years of history.

    There is a shit pot of economic data that counters the Keynsian claims. Why the fuck would you choose to ignore it and instead whine about how we can't beat their oh so clever unfalsifiable argument?

    Seriously why are you being like this? I know Feeney won't answer shit about it. Perhaps you can explain it. Why do you ignore the data and instead focus on whining about the lack data?

  • ||

    Sometimes i think Feeney is a secret Keynesian...his arguments against Keynesian economics are so weak they may as well not even exist.


    That by definition is factual falsifying data countering the Keynesian claim.

    Get the stick out of your butt. The claim "if we just spent MORE, it would have worked" certainly has an element of unfalsifiability to it. If it doesn't work, they increase the money "necessary" for it to "work". That shifting of goal posts when it's disproven is a hallmark of unfalsifiability.

    I know you think it is all sort of cleaver to say

    She never said it was clever, but unfortunately people tend to buy the argument. Don't be a dick about it.

    I know Feeney won't answer shit about it. Perhaps you can explain it.

    Geez, you sure are being a dick over this. I don't think pointing out that the claim "just a little more would have done the trick" is unfalsifiable, since they can always claim that even more would have fixed the job. It's sort of like those Drug War statistics Nick posted about, how it's always "evidence" for more funding.

    Why do you ignore the data and instead focus on whining about the lack data?

    I don't think her offhand comment is "whining" about anything, let alone data or the lack thereof, which she doesn't even mention in her post. Really, is there something wrong with you today, or are you always an ass?

  • The Derider||

    While I don't agree with the conclusions of that book, I agree that orthodox economics can be compared to empirical data to determine whether the model is correct or not.

    Contrast that with Austrian economics, which rejects empirical analysis on principle. That really is non-falsifiable.

  • Calidissident||

    So you don't agree with the empirical proof? And you're calling others out for not believing in empiricism?

  • The Derider||

    I don't think one book is the last word on empirical proof vis. the economy.

  • ||

    What, do I have to bombard you with links again?

    I am not your puppet. Go look it up.

    There is mountains of supporting all recent all published and all peer reviewed.

    There is nothing recent, published and peer reviewed for Keynesian economics. zip!

    It is a dying cult not an economic science.

  • ||

    Austrian economics, which rejects empirical analysis on principle. That really is non-falsifiable.

    That book is empirical proof of Austrian economics.

    You are an insane person Joe.

  • The Late P Brooks||

    If Europe has any chance of overcoming the mess it is in then politicians have got to start being honest.

    So, no chance at all.

  • FD||

    "Indeed the size of the government _as a percent of the economy_ has increased..." [Emphasis my own]

    Why is this qualifier employed? It provides no useful insight nor analysis.
    Even specifying governmental spending per capita (and normalized for inflation) is more indicative of consistent, interminable, and constant smothering of the individual, the person, and his suffocation at the hands of government's blob.

    But even a per capita tracking, while a step in the right direction and improvement over the nonsense quoted, is still a pathetic compromise, providing cover for the disastrous loss of liberty.

    Bloody hell. "...as a percent of the economy..."
    By not flinging that whole damn thing out the window, there is implied approbation, rather than rejection of it as obfuscation.
    The statist left and right sucker Austrians and libertarians into accepting these phony yardsticks in their lying game.

  • Jerry on the road||

    But macroeconomists will be out of a job when we stop this lying game.

  • ||

    Why is this qualifier employed? It provides no useful insight nor analysis.

    It could if Feeney ever talked about how a high GDP to debt ratio hurts the economy.

    Seriously Feeney just sucks at his job.

    His arguments are half assed and he only talks about what Keynesian think and instead of looking at the counter arguments and counter data produced by real published economists he instead brings in his own journalist experience into the fray and then fails miserably.

    Tim does the same sort of thing, ignoring economists who are not Keynesian, but at least he does use real data....plus as a journalist in general unlike Feeney Tim is a joy to read.

  • ||

    It's times like these when I begin to think there really is some sort of massive international communist conspiracy. Whose goal is a world socialism and whose tactic is to drive the world market into total collapse through insane budgetary policies. By creating economic chaos, and blaming it on capitalism, they can seize control of industry, and impose all the price controls they want. All the free shit is as much about ruining the country as it is about free shit.

  • ant1sthenes||

    It's completely inconceivable that democracies the world over could be corrupt, venal, and short-sighted.

  • Gladstone||

    Cloward Piven!

  • Luís Faria||

    "The Myth of Portugal's austerity" - bluffing its way to fiscal retrenchment.

    http://www.contraditorio.pt/read-forum.php?i=3044

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