Euro Crisis

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.