Forgot About Keynes

Populism Trumps Reason

There’s a moment when people just began to figure out that for the past thirty years going from 1985 until now, huge amounts of money have been generated in the global economy and most of it’s gone up to a tiny fraction of the population. There’s been a huge amount of growth but hardly anyone’s benefited from it … That’s the reality for people, not just here [but] in many, many countries … So, they’re fed up of this and they’ve decided that at any possible opportunity, whether it’s Brexit [or] the Italian constitutional referendum … to basically give their elites notice that we’ve had enough of this … and that’s what this is. (Blyth, 2016)

As Mark Blyth and Robert Reich have argued, it is in fact fairly easy to understand Brexit and Trump’s victory. While it may have seemed for the best part of the 1990s and the 2000s that the neoliberal hegemony had been successful, that’s no longer the case; now almost everyone understands that the relentless push for a market society has failed. Though they resulted in narrow victories, the vehemence of the support for the Leave and Trump campaigns reflect the conviction of ordinary people that markets now need reining in. As John Kay argues:

The hubris that legitimised greed and proclaimed the primacy of shareholder value led to the global financial crisis of 2008 and, more generally, undermined the legitimacy of capitalist organisation.

Today Europe’s traditional social democratic parties are led by a metropolitan elite whose preoccupation with the environment and discrimination has little resonance with the traditional working-class base. (Kay, 2016)

Some commentators, such as Thomas Frank, have suggested that the left is to blame for Brexit and for Trump’s victory and to some extent they are right – however the left did not actively create this, rather it was passive while the right seized the moment.

For a brief period, lasting no longer than a couple of years after the onset of the global financial crisis, there was a consensus that governments must step in to bail out their banks and to sustain aggregate demand in the face of a weakened private sector. Some hailed the Return of the Master. It was probably during the 2010 Toronto summit of the G20 that the most decisive shift in contemporary British economic policy occurred. It was agreed that surplus countries should work towards increasing their expenditure and deficit countries should work towards reducing theirs. This was catastrophic for the left, though many may not have realised it at the time. This was the period in which the right argued, successfully enough, that it was due to excesses of the state, not the private sector, that government debt had grown to the levels it had and that what was needed was not a vigilant state but a diminished and more fiscally responsible government.

The truth it seemed, did not matter and despite Gordon Brown’s initial protestations, the Overton window has shifted decisively rightwards; from 2010 onwards not even the Labour Party opposed the drive for austerity, it only pleaded that cuts were not too deep or front-loaded.

It’s worth recalling as well that in 2009 it emerged that MPs had been systematically and brazenly abusing their expenses system. This, along with British acquiescence on the Iraq War and the popular concern of an indefinite national debt overhang, are probably the three biggest factors in the disintegration of public support in the Labour Party, which to widespread surprise lost the 2015 general election, its first such defeat since 1992. The British people were convinced by Cameron’s Conservatives that Labour had been reckless and profligate and that reputation, though it is unwarranted, has stuck.

It’s ironic that some are now complaining that the left has focused too much effort on civil rights when it has traditionally done the most to oppose the neoliberal agenda of the right. It is, however, still the case that New Labour took its policy lead from Thatcherism and while regrettable, this remains the conduit by which the left returned to power. This was also essentially the case with the Clinton administration in the US. It’s rich of the right to berate the left for going along with the neoliberal agenda when it was Raegan and Thatcher that led it … and it’s downright tragic when you consider how Cameron, Osborne and Clegg  lied about Labour’s fiscal discipline to wrest power back.

In any case, the diagnoses of many are right – the political establishment on both sides of the Atlantic grew increasingly out of touch with ordinary people. So out of touch, in fact, that while it engineered cuts in public spending for the most vulnerable in society by demonising benefits claimants, the coalition government took the EU to court over a cap against bankers’ bonuses.

In the 1970s, the economic and political right, led by Friedrich Hayek, Milton Friedman, Ronald Raegan and Margaret Thatcher, convinced the US and the UK that in order to be prosperous, we needed to forget about others, that there was no such thing as society, that ultimately, it was each of us that mattered. It was every man for themselves and the state had to be gutted and discredited in order to empower the rich to create jobs and wealth, first for themselves but which would then trickle down to the little people. Now, forty-odd years on, the verdict is in: neoliberalism has failed.

What’s remarkable at first, is that it was the right-wing that led this revolution against the hegemony of the market. It was Nigel Farage, a former city trader and Tory backbenchers that clamoured for a referendum on membership of the EU and as in the US, it was a canny slogan that enthused and energised often shy and long dormant voters to vote for change. However, looking at it from another perspective, it seems unavoidable that the left has been caught napping.

The global financial crisis and the Great Recession marked an epochal shift in Anglo-American history. The Occupy movement and the Sanders for President, Yes, Leave and Trump 2016 campaigns all understood this on a visceral level. While Hillary Clinton and David Cameron were cognizant of this, they didn’t fully appreciate just how endangered they were. It remains to be seen whether or not Trump and Theresa May can deliver on their respective mandates but if they do, they may well be the first among a new generation of public servants who for the first time in decades, work in the interests of their people instead of a narrow elite.

What’s unsettling and deeply regrettable is the way in which Trump and May have both come to power against a backdrop of thinly-veiled racism and unbridled nationalism. This is dangerous because it risks energising the far-right in European elections to come. In the worst case scenario it may lead to the disintegration of the EU and the isolationism of the US and European powers at a time when the Baltic and Middle East nations need them the most.

In the grandest of ironies, the right-wing in the US and the UK have engineered insurrections against the policy consensuses they themselves created a generation ago. The liberalisation of capital, the push for globalisation, the systematic destruction of trade unions and workers’ rights and freedom of movement brought with it, the greatest financial crisis since the 1930s aside, steady growth but it also destroyed its very own life force. The often incoherent, long insecure working and middle classes of the  US and the UK have plunged a stake through the heart of neoliberalism. Though they are not solely or even primarily to blame, immigrants, refugees and Muslims are all now unwelcome in the west. The right, which told us the state wasn’t important, gave us Public Choice Theory and told us that the rich and the sovereign individual would lead us all to mutual prosperity managed somehow to convince a majority that almost everyone but they themselves were to blame for our current predicament.

It’s poetic, in a way that, having disenfranchised its own core voter base that neoliberalism is being shown the door by conservatives everywhere but simultaneously perverse that the right maintains its conviction that it alone can save us, since its great victories have resulted in the coming to power of Donald Trump and Theresa May. As Gillian Tett puts it:

the problem with having a non-professional in office is not just that they lack experience; it is that it is also hard to predict how they might behave in the future. Nobody can assume that the regular rules of politics will apply; nor the rules that journalists, lobbyists, investors and business leaders have relied upon. We cannot even assume that the sketchy policy platforms that Mr Trump has already revealed will transpire. We are heading for a world where policymaking is likely to feel as improvised as the victory party in the Hilton Hotel.

While this type of disruption is terrifying for the establishment, the message from voters is clear: many of them want change at almost any cost. Hold on to your seats for a potentially wild ride. We have embarked on an era of political improvisation. (Tett, 2016)


The Conservatives Made Deficit Reduction Their Number One Priority. What Sense Then, Do Tax Cuts for the Richest Make?

In interviews broadcast earlier today, both the Prime Minister and the Chancellor refused to rule out a reduction in the top rate of income tax. The Conservatives, as they have made clear at almost every opportunity, are committed to deficit reduction and national debt repayment. Why then would they even have to think about changes in tax rates? If the government is committed to “balancing the books,” it will not make its efforts any easier by forgoing revenues. That is, unless the government is not entirely concerned with deficit reduction after all. 

For the past five years, this government has insisted that its policies have brought the country back from the brink of another economic crisis. The coalition made wide ranging cuts to department budgets and privatised Royal Mail and the east coast mainline among other sell-offs. These were “tough choices” that could not be avoided given the massive burden that the deficit and the debt stock presented to the present and future generations of taxpayers.

The basic problem with this narrative of fiscal responsibility however, is that despite its ubiquity, it has been undermined by the government itself. If austerity is about getting the nation’s finances in order and as such making sacrifices in government spending, then it genuinely has to be the case that “we are all in this together.” Why then, has the Chancellor been boasting of the success of its pensioner bond (which will cost the taxpayer hundreds of millions of pounds while being available exclusively to over-65s)? Why then, is this government considering taxing disability benefits? Why has George Osborne just underlined his party’s commitment to taking more households out of the higher rate tax band? How could it plausibly be the case that young and old, rich and poor alike are being treated the same when these are the government’s fiscal policies?

If we take the government’s rhetoric on austerity at face value, we see a coalition committed to reducing its spending and increasing its revenues. If we take its policies into consideration we have a problem however, because a government genuinely committed to balancing its books doesn’t forego the opportunity to tax those individuals and organisations under its jurisdiction that have the greatest ability to pay tax. Given its ambitious targets to eliminate the deficit and begin paying off the country’s debt, the last thing that should be expected of the government should be for it to be protecting its wealthiest from austerity while removing the safeguards of the poorest in society. And yet that is exactly what this government has been doing for the past five years.

Imagine a Labour government that came into power on the back of pledges of fiscal responsibility that acted with such abandon. Ed Balls and Ed Miliband are committed to eliminating the deficit as well, as it happens (though they plan to do it more gradually). What would the Conservatives and the right wing press think then, of a Labour government that then proceeded to return the top rate of income tax to 50 per cent, while reducing tuition fees, bringing back the EMA and freezing public sector cuts? They’d be predictably outraged and cry hypocrisy … and they’d have a point, because a government committed to reducing its share of national spending doesn’t just talk about it, it does it. It doesn’t proclaim a failure to meet its core policy targets a success.

The deficit is down, but it hasn’t been eliminated. The national debt is only rising. By all accounts, we are not all in this together. The UK is the only member of the G7 where wealth inequality has increased since 2000. Pensioners and the wealthiest in society are among the few that have emerged at this parliament’s end better off than at its start. The country’s young do not bear any less of a national debt burden than they did before and thanks to the Conservatives and the Liberal Democrats, now pay £9,000 for university tuition.

By all accounts, this government seized upon the economic concerns of the electorate and exploited those worries to make the rich richer and the poor more insecure than they have been for some time. And in the name of what? The Conservatives are barely any more electable now than they were five years ago and the Liberal Democrats have sacrificed a great deal of their electoral support.

The Greek government had austerity imposed upon it by the IMF and the EU. George Osborne freely reshuffled the fiscal deck to bolster the fortunes of his party’s core voters.  A country that freely changes its fiscal policy is not a country in imminent danger. A country that makes cuts to certain departments while fencing off other budgets is not a country in imminent danger. A government that presides over a population resorting to rioting, constant protest and a proliferation in food banks is not a government that sees all its subjects as equal. This government put looters in jail for stealing bottles of water and bags of rice while fighting to protect its bankers from an EU cap on bonuses.

The final and essential point to make is this: if the UK government needs to spend, there is nothing in principle that is stopping it from doing so.

Taking the coalition line on austerity at face value – that there was no other option than to make immediate spending cuts in 2010 – necessitates a pragmatic, evidence-based, impartial approach to deficit reduction. If money is tight, then it has to be the case that cuts are shared and that everyone chips in equally.

There’s always enough money, though. There’s money for HS2 alongside cuts to local government budgets. Former residents of council housing in Newham may be on their own, but ‘money is no object’ when David Cameron’s constituents need rescue. There’s no end to public funds for a top-down reorganisation of the NHS or a wholesale restructuring of the benefits system. There may be a shortage of housing in almost all urban areas but renovating the Palace of Westminster will be assumed an urgent priority and the funds will no doubt be made available. The coalition may take a hardline on public spending but when it needs to protect its political future, it will not hesitate to spend everyone’s money to stay in power.

If there is no alternative to austerity, there are still political choices to be made as to which spending plans to change. This government chose to make the disabled and the poorest more insecure while ensuring that pensioners and the rich were well-looked after. If there’s one thing this coalition has taught us, it’s that we should never believe a government that tells us it has no choice but to embark upon a certain set of plans.

The Greek government, which this coalition has too often got away with comparing itself to, continues to show us how a country genuinely in crisis behaves. The Greeks have implemented austerity as a last resort and have sought to protect their people from its effects. This coalition government has chosen austerity as a first choice and implemented it selectively and patchily.

If it can find hundreds of millions in taxpayers’ money to enrich its pensioners, this government didn’t need to tax spare bedrooms after all. If it can even afford to think about reducing the burden of tax on the richest, this government doesn’t need to tax disability benefits. The UK is not Greece and if “tough choices” have been made, they haven’t affected everyone equally; that much should be glaringly obvious by now.

The Plausible Impiety of the Modern Economist

In celebration of its eightieth birthday, Penguin has published a series of short works; one of these Little Black Classics is a collection of two pieces by the Victorian art critic John Ruskin.

The common thread between “Traffic,” a lecture delivered by Ruskin to businessmen at the Wool Exchange in Bradford in 1864 and “The Roots of Honour,” the first chapter of “Unto this Last,” is a defence of cultural and civic life against what he saw as the rise of business as a religion.

In “The Roots of Honour,” the political economy to which Ruskin refers is what we now know as the field of economics, which is professed by its practitioners to be value-free.

“The social affections,” says the economist, “are accidental and disturbing elements in human nature; but avarice and the desire of progress are constant elements. (Ruskin, 2015: 33)

This would be an appropriate standpoint, he argues, if it were not for the fact that “the social affections” are anything but dispensable. It makes as much sense to base economics on the assumption that everyone is above all self-interested as it does to base a science of gymnastics on the premise that people do not have skeletons. We could roll such people into balls or stretch them into canvasses – but there’s not really much use in thinking about people in this way if we’re going to apply this branch of thought to actual people that have genuine skeletons.

What good is there in a science, he asks, which is unable to solve its most fundamental problems? Why for instance, we might ask, in the aftermath of the 2007-8 financial crisis, were policymakers preoccupied with inflation rather than unemployment?

This isn’t really the point for Ruskin, however, because he did not believe that we could have definitive answers to such problems – because for him, it was futile to frame human activity and endeavour in terms of efficiency instead of justice.

No man ever knew, or can know, what will be the ultimate result to himself, or to others, of any given line of conduct. But every man may know, and most of us do know, what is a just and unjust act. (Ibid.: 37)

This is because labourers aren’t machines running on steam, magnetism or gravitation—or the apparent economic analogue, self-interest—people are so much more complex than that. We don’t maximise productivity by appealing to people’s greed, he argues, but what truly drives them – their “affections.”

One of the greatest errors of economists, he argues, is their refusal to believe that ordinary people could work for any incentive other than what their labour is worth on the market.

We do not sell our prime-ministership by Dutch auction; nor, on the decease of a bishop, whatever may be the general advantages of simony, do we (yet) offer his diocese to the clergyman who will take the episcopacy at the lowest contract. (Ibid.: 44)

Economists accept that certain professions should be set outside the remit of the market but not all – and yet, argues Ruskin, this isn’t good enough. We shouldn’t necessarily afford our democratic leaders or our physicians or our spiritual leaders a greater level of dignity than any other profession.

The natural and right system respecting all labour is, that it should be paid at a fixed rate, but the good workman employed, and the bad workman unemployed. The false, unnatural, and destructive system is when the bad workman is allowed to offer his work at half-price, and either take the place of the good, or force him by his competition to work for an inadequate sum. (Ibid.: 45)

In other words, it is more important to pay workers fairly than it is to pay them as little as legally possible. This might lead to a lower capital share of GDP but then so be it.

Ruskin argues that people have always respected soldiers more than merchants because their job, ultimately, is to put their life on the line for their country – this is honourable. The merchant, on the other hand, is expected to act selfishly – this isn’t honourable.

The merchant’s first object in all his dealings must be (the public believe) to get as much for himself, and leave as little to his neighbour (or customer) as possible. (Ibid.: 50)

The work of soldiers, physicians and lawyers is honourable because they are judged according to their own professional standards. Soldiers die in the defence of their families, neighbours and compatriots; physicians work to keep people healthy; lawyers serve justice. Ultimately, all honourable work is judged according to a normative standard. We wouldn’t turn a blind eye to corruption in healthcare or justice – so too should it be in commerce.

What good then, is there to be found in the essence of exchange?

It is no more his function to get profit for himself out of that provision than it is a clergyman’s function to get his stipend. The stipend is a due and necessary adjunct, but not the object, of his life, if he be a true clergyman, any more than his fee (or honorarium) is the object of life to a true physician. Neither is his fee the object of life to a true merchant.

All three, if true men, have a work to be done irrespective of fee—to be done even at any cost, or for quite the contrary of fee; the pastor’s function being to teach, the physician’s to heal, and the merchant’s, as I have said, to provide. (Ibid.: 52-53)

The honour in business is to provide; not for the sake of making money out of any given activity but for the purpose of making goods and services available to people, irrespective of earnings.

The root of honour is to be found outside of money, because we all have responsibilities to each other … and the greatest expression of such responsibility is to treat those in one’s authority as one’s own flesh and blood.

as the captain of a ship is bound to be the last man to leave his ship in case of wreck, and to share his last crust with the sailors in case of famine, so the manufacturer, in any commercial crisis or distress, is bound to take the suffering of it with his men, and even to take more of it for himself than he allows his men to feel; as a father would in a famine, shipwreck, or battle, sacrifice himself for his son. (Ibid.: 55)

The religion of Ruskin’s age, he argued in “Traffic,” was economic growth, but what is the point of growing the economy if this growth is not shared by everyone? What is the point of the economy marching forward if it leaves masses behind?

Getting on – but where to? Gathering together – but how much? Do you mean to gather always – never to spend? … it is because of this (among many other such errors) that I have fearlessly declared your so-called science of Political Economy to be no science; because, namely, it has omitted the study of exactly the most important branch of the business — the study of spending.

For spend you must, and as much as you make, ultimately. You gather corn: – will you bury England under a heap of grain; or will you, when you have gathered, finally eat? You gather gold: – will you make your house-roofs of it, or pave your streets with it? (Ibid.: 24)

The trouble with the miserly outlook of economists is that in professing objectivity, they overlook plain facts. What is the point of a reduction in the rate of poverty if such widespread poverty and destitution as that to which we have become accustomed (and economists and conservatives like to tell us is inevitable) is, in historical perspective in fact, not normal and essentially systemic?

For, observe, while to one family this deity is indeed the Goddess of Getting on, to a thousand families she is the Goddess of not Getting on. ‘Nay,’ you say, ‘they have all their chance.’ Yes, so has every one in a lottery, but there must always be the same number of blanks. (Ibid.: 26)

Ruskin reminds us that regardless of our start in life, which it is true we cannot change, the refrain “life is unfair” (usually followed by an implicit or explicit suggestion to “deal with it”) rings hollow. To economists, there is no reason to necessarily favour redistribution from the wealthy to the rest because the market is assumed quite capable of decided who should be wealthy and who shouldn’t. This is because economics implicitly assumes a meritocracy.

If people are willing to work hard enough, they too can become rich and simply being rich, we are told, doesn’t preclude others becoming rich. “It’s not a zero sum game.” Well, that’s one way of looking at things.

I beg you to observe that there is a wide difference between being captains or governors of work, and taking the profits of it. It does not follow, because you are general of an army, that you are to take all the treasure, or land, it wins (if it fight for treasure or land); neither, because you are king of a nation, that you are to consume all the profits of the nation’s work.

Real kings, on the contrary, are known invariably by their doing quite the reverse of this … There is no test of real kinghood so infallible as that. Does the crowned creature live simply, bravely, unostentatiously? probably he is a King. Does he cover his body with jewels, and his table with delicates? in all probability he is not a King. (Ibid.: 27-28)

Economics has developed a vast literature espousing the notions that greed is good, that selfishness is actually socially beneficial, that having more wealth than several generations of one’s family could possibly have use for is neither just nor unjust nor anyone else’s concern. But these are specious notions.

It may, on the face of it, seem wise to believe that pursuing one’s self interest would also benefit wider society – but then consider what came to light in England this past week. Undercover reporters filmed two former defence secretaries, Jack Straw MP and Sir Malcolm Rifkind MP, offering their parliamentary influence at a price.

Straw allegedly boasted to undercover journalists that he had operated “under the radar” to use his influence and change EU rules on behalf of a firm that paid him £60,000 a year.

There is no other way to describe this than as blatant corruption and if anything, the rates offered by the two compound the extent to which they have cheapened democracy. To what extent can it be said that the people of Britain or Europe benefit from the sale of such political influence? If anything, it is obvious that we all lose out when such transactions are made.

Greed isn’t universally good. Selfishness isn’t necessarily beneficial to society. Wealth isn’t purely a private concern. I’ll be exploring these ideas further in an upcoming post on the ethics of markets, looking in particular at the arguments of Michael Sandel. As it happens, he summed up the main arguments of his bestseller What Money Can’t Buy in a short video for the Guardian last month.

Greece Hasn’t Got a Debt Problem. It Has a Lack of Growth Problem!

Modern Monetary Theory: Real Economics

At something like 175% of annual GDP it is easy to think that Greek public debt is out of control. But, let’s look at it another way. If Greek GDP had stayed the same as 2008 levels instead of falling by 30%, and also assuming current levels of debt, the ratio of debt to GDP would now be 175 x 0.7 = 122.5% Which might still be a little on the high side, for a non sovereign currency issuing country, but it would be looking a lot more manageable.

If Greece had instead grown its economy by the same amount, the ratio would be 122.5/1.3 or 94%. OK still a little high, maybe, but not the catastrophe the Eurozone has on its hands at the moment.

The key to managing Greek debts is help enable Greece to service  them. There’s no real need  to pay them off with interest rates…

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Simon Wren-Lewis: Labour Has the Better Macro Policy from 2015

While many, including George Monbiot, now believe that there is little substantive difference between the major parties, the Oxford economics professor Simon Wren-Lewis argues that this is a serious misconception because, as he says, “It is quite possible that we will see very little additional fiscal tightening under Labour, and a lot more public investment.”

Labour, he says, are going along with austerity not because they believe in its efficacy but because they are under immense pressure from the media to show that they are serious about deficit reduction. Wren-Lewis coined the term mediamacro last year to describe “macroeconomics as it is portrayed in the majority of the media,” which he explains is too concerned with financial markets and their participants and:

prefers simple stories to more complex analysis. As part of this, it is fond of analogies between governments and individuals, even when those analogies are generally seen to be false by macroeconomists. So after the 2010 election (and to some extent before it) mediamacro had bought with barely a murmur the view that reducing the government deficit was the top priority.

The media’s obsession with the deficit is bizarre from the standpoint of professional economists—most of those recently surveyed by the Financial Times do not believe that the continuation of the chancellor’s current austerity plans in the next parliament is feasible or wise—because, as Wren-Lewis points out, the government’s macroeconomic priority should be the country’s stalling labour productivity.

The Conservative Party has boasted about the country’s recent employment growth as a sign of its economic competence but this is not unequivocally a good thing. Essentially, if there are more people in work but the country is producing the same level of output as before, then output per worker (labour productivity) has gone down. This is what has happened in recent years in the UK and this is why real GDP per capita still hasn’t recovered to its pre-crisis peak. According to the Bank of England:

Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied by its pre-crisis trend.

If this stagnation in labour productivity continues, the long term outcome will be lower standards of living … and economists are alarmed by this prospect.

Over the past year, the Conservatives have been polling steadily higher to the point that it’s now difficult to predict the outcome of the general election. A couple of years ago, Labour seemed to have it in the bag. The difference between then and now seems to be that people, on the whole, feel better about GDP. But the major difference in policy over this period has been the fact that the pace of austerity has slowed.

In its December 2014 Economic and Fiscal Outlook, the Office for Budget Responsibility shows government borrowing trending downwards. This trend, however, is predicated upon forecasts of spending cuts and increased revenues.


Austerity, however, comes at a significant cost. As Wren-Lewis points out:

The Office for Budget Responsibility estimates, somewhat conservatively, that austerity took 1 per cent off economic growth in both 2010-11 and 2011-12. It seriously blunted the recovery.

The most likely outcome if the Conservatives stick to their proposed deficit reduction targets is that the UK’s economic growth will once again slow down. We may see a return to recession in 2016 or 2017, by which point the pace of austerity may have to be eased once again. In other words, if the Conservatives stay in power, we’re more or less going to see a re-run of their first term in government. The Financial Times puts it like this:

Of the 87 economists who answered a question on deficit reduction in the Financial Times’s annual survey of predictions for the coming year, 52 thought the next government would deviate from the current plans at some point in the next parliament. Another 12 believed the outcome would depend on the election result, while 19 thought the next government would stick to current plans.

Plans for £50bn of extra spending cuts a year were widely seen as not credible and unlikely to be achieved.

What will be different come the mid-way point in the next parliament will be the country’s reaction. People will remember that they were promised a government that would make the tough choices necessary to eliminate the deficit and pay down the country’s debts.

The OBR’s predictions of a budget surplus by the end of the next parliament are predicated on the government’s economic plan working … but the government will not be able to deliver on its pledges just as it did not in this parliament, because spending cuts alone do not reduce the need to borrow. As it stated in December 2014:

“Despite strong economic growth, the budget deficit is expected to fall by only £6.3bn this year to £91.3bn, around half the decline we expected in March. “That would be the second smallest year-on-year reduction since its peak in 2009-10, despite this being the strongest year for GDP growth.”

The government was still set to miss its target of having net debt fall as a share of GDP in 2015-16, the independent forecaster said.

Wren-Lewis believes that the penny is finally beginning to drop. The coalition government could get away with delaying the recovery until 2013 on the basis that cuts had to be made and that they would reduce the deficit … but the deficit has not been eliminated and the stock of national debt continues to pile up.

Most glaringly, a government that insisted that “we are all in this together” has proceeded to make life for the most disadvantaged even harder while reducing the top rate of tax and essentially bribing wealthy OAPs in the run-up to the election. The Taxpayers Alliance put it this way:

“[The government’s pensioner bonds are] not only taxpayer-guaranteed investments for the already relatively well-off, but leave the government borrowing at above-market rates.

“Too often during this Parliament it has seemed as if austerity stops at 65 – it’s almost as if pensioners are more likely to vote.”

Chris Giles is not normally complimentary about the Labour Party, but even he admitted recently that: 

the Tories’ plans appear ideological and border on calamitous for many public services. The opposition should be pressing this point home.

Yet for all the flaws in its analysis and the missteps in its campaign, the intriguing thing about Mr Miliband’s Labour party is that its broad economic prospectus for the 2015 general election is perfectly sensible.

There is nothing definitively profligate in seeking to eliminate the current budget deficit by 2020, and reducing public debt as a proportion of output. This implies more borrowing than the Tories propose alongside an approach to cuts in public services that is more realistic.

Wren-Lewis has grown increasingly frustrated at a media which is focused on the wrong indicators of performance. Instead of giving Labour credit where it is due—he says that “it is hard to find a macroeconomist who does not think Labour has the better macro policy from 2015”—even broadcasters such as Channel 4 take Ed Miliband to task for failing to mention the deficit in a speech. Meanwhile, David Cameron’s silence on the productivity gap goes virtually unnoticed.

As the challenge to austerity is mounting on the continent, the British media’s appetite for cuts is as insatiable as ever – it continues to present “reduction of the government’s budget deficit as the overriding macroeconomic priority, when in reality that policy has done and may continue to do considerable harm.”

What most frustrates the likes of Wren-Lewis and Paul Krugman is the fact that the basic issues with austerity were obvious even in 2010. The UK did not have to inflict the spending cuts on itself that it did because it was never in danger of ending up like Greece, as George Osborne warned back then. This is why at the height of the sovereign debt crisis,

interest rates on government debt in almost every advanced country outside the Eurozone fell to record lows. Paul De Grauwe of the LSE suggested a very simple explanation for this: Eurozone government debt was uniquely risky.

The US economy recovered to its pre-crisis peak a full two years before the UK did. The Obama administration, for all its faults, cut its spending by proportionately less than the coalition government did, and this made a difference. Going forward, the real terms cut in education spending pledged by Cameron earlier this month will not dent the national debt and is in fact likely to compound the stagnation in the country’s labour productivity.

The UK’s economic fortunes are currently showing an improvement because the government has recently eased up on austerity. Resuming its programme of cuts will be as predictably harmful as the cuts were in the period 2010-2012 – and the government will face the same pressures to change course that it did back then, only this time they are likely to be greater.