I want to expand on
a footnote to last week’s post. As
I said there, we now have clear
evidence that austerity from 2010 onwards helped fuel
right wing populism, Brexit and Farage. However, that post argued
that right wing populism would have emerged anyway, because its
fundamental cause was a trend towards ending elite taboos on the right
against appealing to xenophobic and racist voters which we see across
the world. So austerity just helped populism arrive more quickly and, with
Brexit, more dramatically.
In contrast I do
think a lot of the problems we see in the UK Labour party today stem
from Osborne’s successful devastation of public services, and it is
less clear they would have happened anyway. A Conservative cutting
public services to numbers way below what the public were comfortable
with should have been a gift to Labour of course. So I think the
story of how it turned out otherwise is worth spelling out.
It is easy to forget
how almost
universal the belief was in the UK media during the
austerity years that reducing the budget deficit had to be the major
macroeconomic priority. Basic macroeconomics, understood since
Keynes, said that when interest rates were stuck at their lower bound
cutting the deficit would damage a recovery. This was ignored,
despite it being in the worst recession since WWII. We now know, from
empirical work at the IMF, that trying to cut the
deficit in this situation not only prolonged the recession but in all likelihood made the public
finances worse in the medium term as well!
As few now defend
Osborne’s policy today, it is easy to forget how much it seemed to
be common
sense to the media and large parts of the electorate
at the time. I invented
the term ‘mediamacro’ to describe
this. In contrast a majority of academic economists
opposed austerity as it began, unsurprisingly given it violated what
we all taught, and this majority grew
steadily over the next few years as the damage became clear and the
intellectual arguments for austerity collapsed, but
none of that made much impression on the media.
The result was that
Labour in opposition found their arguments against Osborne’s policy
were getting nowhere, and so they were gradually discarded. [1]
Despite UK workers facing a cost of living crisis at
least as bad if not worse than over the last few years,
the Conservatives won the 2015 election, and the media’s promotion
of austerity played
a key part in that. The reaction to this among many prominent
Labour figures was to almost
completely accept the case for Osborne’s austerity.
Ironically, just when public opinion was finally beginning to turn
against what Osborne had been doing, it looked as if Labour’s
senior politicians were heading in the wrong direction.
I thought at the
time and still think this is the essential background to
understanding the election of Jeremy Corbyn as leader in 2015. A
majority of Labour members hated austerity for good reason, and were
dismayed at seeing their party leaders be equivocal at best. Corbyn
was the only one of the four candidates who clearly opposed
austerity, and as a result he won overwhelmingly. It is silly to
blame this result on ‘entryism’, although
that is less true of his re-election in 2016.
So I think it is
fair to say that it was austerity, and the failure of Labour to dent
the media consensus that austerity was necessary, that led to the
four years in which the left led the Labour party. Of course that
doesn’t excuse the Labour leadership that came before him for their
appeasement of austerity, but I hope it makes it a little more
understandable. Equally it is unconvincing to suggest that most of
this pre-Corbyn leadership actually wanted a smaller state, after
they spent years in government doing the opposite.
In opposition Labour
under Corbyn and Shadow Chancellor John McDonnell did
make good on the promise of ruling out a repeat of
2010 austerity. Although McDonnell accepted (rightly in my view) the
need for a fiscal rule, these would not apply when interest rates
were stuck at their lower bound, which they had been since 2009. The
media at the time called this a ‘loophole’, of course, but something
like it is now standard in most UK fiscal rules adopted in recent
years. In the recession that came with the pandemic Sunak made no
attempt to pretend that the budget deficit was the priority, and
instead enacted a (probably
overgenerous) fiscal stimulus package, which was the
opposite of the policy advocated by Osborne in 2009.
It also became
clear, pretty quickly after Corbyn’s election, that
there were those on the right of the Labour party that would never
accept a party led from the left, and who were prepared to see a
Conservative government as a price worth paying for taking control of
the Labour party away from the left. They had expected this to happen in
2017, and were rather shocked when it didn’t, but they organised
with the help of the media to ensure it happened in 2019.
That is not to
suggest that this right wing faction was responsible for Corbyn’s
2019 defeat. Actual and potential Labour voters were overwhelmingly
against Brexit, and as it became clear from 2016 to 2019 what Brexit
under the Conservatives would entail, this opposition grew more
impassioned. Corbyn was
slow to respond to this, which neither pleased
Remainers or (w…
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