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No Pain, No Gain for Britain?

Author(s): Robert Skidelsky

The economic historian Niall Ferguson blames John Maynard Keynes for Labour’s defeat in the recent UK election. But Labour has been running away from Keynes for years, while the victorious Conservatives’ austerity policy, which Ferguson defends, turns out to have inflicted severe damage on the British economy.

From Project Syndicate:

The economic historian Niall Ferguson reminds me of the late Oxford historian A.J.P. Taylor. Though Taylor maintained that he tried to tell the truth in his historical writing, he was quite ready to spin the facts for a good cause. Ferguson, too, is a wonderful historian – but totally unscrupulous when he shifts into political gear.

Ferguson’s cause is American neo-conservatism, coupled with a relentless aversion to Keynes and Keynesians. His latest defense of fiscal austerity came immediately after the United Kingdom’s recent election, when he wrote in the Financial Times that, “Labour should blame Keynes for their defeat.”

 

Ferguson’s argument amounts to that of a brutal disciplinarian who claims vindication for his methods by pointing out that the victim is still alive. In pleading on behalf of British Chancellor of the Exchequer George Osborne, he points out that the UK economy grew by 2.6% last year (the “best performing of the G-7 economies”), but ignores the damage that Osborne inflicted on the economy en route to this recovery.

There is now much agreement about this damage. The Office of Budget Responsibility, the independent agency set up by Osborne to assess the government’s macroeconomic performance, has just concluded that austerity reduced GDP growth by 2% from 2010 to 2012bringing the cumulative cost of austerity since 2010 to 5% of GDP. Simon Wren-Lewis of Oxford University estimates that the damage might be as high as 15% of GDP. In a recent poll of British economists by the Centre for Macroeconomics, two-thirds agreed that austerity had harmed the UK economy.

Moreover, Britain is not alone. In its October 2012 World Economic Outlook, the IMF admitted that, “fiscal multipliers were underestimated across the world.” In plain English: the forecasters underestimated the extent of spare capacity and hence the scope for fiscal expansion to raise output.

Was it an honest mistake? Or was it because the forecasters were in thrall to economic models that implied that economies were at full employment, in which case the only result of fiscal expansion would be inflation? They now know better, and Ferguson should now know better as well.

A depressing aspect of Ferguson’s unscrupulousness is his failure to acknowledge the impact of the Great Recession on government performance and business expectations. Thus, he compares 2.6% growth in 2014 with the 4.3% contraction in 2009, which he describes as “the last full year of Labour government” – as though Labour policy produced the collapse in growth. Similarly, “At no point after May 2010 did [confidence] sink back to where it had been throughout the last two years of Gordon Brown’s catastrophic premiership” – as though the Brown government’s performance caused business confidence to collapse.

The claim that “Keynes is to blame” for Labour’s election defeat is peculiarly odd. After all, the one thing Labour’s leadership tried hardest to do in the campaign was to distance the party from any “taint” of Keynesianism. Perhaps Ferguson meant that it was Labour’s past association with Keynes that had damned them – “their disastrous stewardship before and during the financial crisis,” as he puts it.

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