Austerity's definitely happened. The question is how much damage it's done

The fact that austerity has failed does not mean no-one tried to implement it.

The Atlantic's Matthew O'Brien writes:

Britain's economy is a riddle wrapped in a mystery inside an enigma, but this much is clear: it's a disaster. After its Olympics-fueled growth, such as it was, lifted it out of recession in the third quarter of 2012, Britain might be headed back after its economy fell 0.3 percent at the end of the year the fourth time in five quarters its GDP has contracted. Britain's now verging on a triple-dip recession, which is just another way of saying a depression…

It's no accident this era of zero growth has coincided with an era of austerity. Despite entering office with borrowing costs at 50-year lows, the Cameron coalition decided the government deficit, and not the growth deficit, was the chief threat to future prosperity. It raised taxes and cut the growth of spending, but did so with little regard for what constituted smart cuts and what did not… It's the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn't completely cripple you.

O'Brien goes on to argue that austerity can't be the only cause of Britain's slump. For him, the real puzzle is the collapse in productivity which has lead to a recovery in the labour market (of sorts) without a commensurate recovery in GDP. (That disconnect may partially be the result of some statistical fiddling on the part of the Government).

There's a number of possibilities for such an "enigma", from zombie firms which are only kept alive by the low cost of credit, through measurement error (both that mentioned above and something gone awry with the seasonal adjustments), to genuine slumps — temporary or otherwise — in productivity.

But one group of people think they have the answer to O'Brien's puzzle, albeit by discounting one of his premises. These are the "cut further, cut faster" Tories, for whom a failure to reduce the deficit as quickly as they desire is the same as a failure to implement austerity.

NIESR's director Jonathan Portes has taken on this tendency, in the form of a detailed response to two of its biggest proponents, Tory MP John Redwood and the Spectator's editor Fraser Nelson.

Nelson writes:

We’re witnessing the difficulty the left has in reconciling its official narrative with what’s actually happening. Yes, George Osborne’s policy is not working – but for reasons that the Guardian can’t quite bring itself to accept. It’s not that his evil cuts are retarding the recovery. It’s that he’s slowly abandoning his deficit plan. The figures show that core government spending is going up, along with the debt and (last month) the deficit.

Portes responds that yes, core government spending "is roughly flat in real terms, with cuts in some areas offset by the operation of the automatic stabilisers". But defining austerity in terms of core government spending is arguing at cross-purposes with those who argue that austerity has harmed the British economy.

The simple analysis of the government's austerity program is that the reduction of the deficit is equivalent to austerity. That was the initial definition the government went with, which is why the failure to reduce the deficit to any great degree is seen as failing on its own terms.

But deficit reduction can't be directly equivalent to austerity, since it can also be achieved by growth. (Which is the argument the anti-cuts left has been making consistently for the last three years.) And so we get to the circular argument in Nelson's claim that Osborne has failed at austerity. Because what he is describing as the failure to achieve austerity — slow paced deficit reduction and flat spending — is actually a symptom of the failure of austerity. As Portes writes, the causal inference is wrong. It's not that the Chancellor is abandoning austerity and so the debt continues to rise; it's that debt continues to rise because austerity doesn't work to reduce it, and so the Chancellor is trying to quietly change tack:

The government did not adopt policy changes which led to slower deficit reduction. Instead, the front-loaded fiscal consolidation illustrated above (along with other factors, such as the similar, and similarly misguided, policies pursued by our eurozone partners) derailed the recovery, which in turn led to the slowing of deficit reduction, which in turn has forced the government to abandon its fiscal framework. Again, the IMF sets all this out quite clearly.

For Portes, the important failure of austerity is in the resulting reduction in capital investment, because austerity stands opposed to fiscal stimulus (which he defines as "Government measures, normally involving increased public spending and lower taxation, aimed at giving a positive jolt to economic activity").

The Government, in its desire to cut the deficit primarily through spending cuts with a top-up of tax rises, thus failed to achieve one of its goals. Spending was not cut significantly, but between tax rises and initial moderate growth, the deficit has been reduced. This is the austerity which is decried. The fact that one of the measures through which this was intended to be achieved is not proof that there has been no austerity, but merely further proof that austerity is self-defeating.

And by focusing on attempts to reduce spending and achieve "fiscal consolidation", the government failed to implement fiscal stimulus (even going so far as to reduce public investment by 1.7 per cent of GDP).

The failure of austerity to greatly reduce the deficit, and the fact that automatic stabilisers mean that spending stubbornly refuses to fall — as we swap a pound spent on EMA for a teenager in school with a pound spent on JSA for an unemployed civil servant — are not the same as a failure to implement austerity. It has been implemented, and it has damaged the nation: the question now under discussion is just how much.

George Osborne looking at wheels. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Could Labour lose the Oldham by-election?

Sources warn defeat is not unthinkable but the party's ground campaign believe they will hold on. 

As shadow cabinet members argue in public over Labour's position on Syria and John McDonnell defends his Mao moment, it has been easy to forget that the party next week faces its first election test since Jeremy Corbyn became leader. On paper, Oldham West and Royton should be a straightforward win. Michael Meacher, whose death last month triggered the by-election, held the seat with a majority of 14,738 just seven months ago. The party opted for an early pre-Christmas poll, giving second-placed Ukip less time to gain momentum, and selected the respected Oldham council leader Jim McMahon as its candidate. 

But in recent weeks Labour sources have become ever more anxious. Shadow cabinet members returning from campaigning report that Corbyn has gone down "very badly" with voters, with his original comments on shoot-to-kill particularly toxic. Most MPs expect the party's majority to lie within the 1,000-2,000 range. But one insider told me that the party's majority would likely fall into the hundreds ("I'd be thrilled with 2,000") and warned that defeat was far from unthinkable. The fear is that low turnout and defections to Ukip could allow the Farageists to sneak a win. MPs are further troubled by the likelihood that the contest will take place on the same day as the Syria vote (Thursday), which will badly divide Labour. 

The party's ground campaign, however, "aren't in panic mode", I'm told, with data showing them on course to hold the seat with a sharply reduced majority. As Tim noted in his recent report from the seat, unlike Heywood and Middleton, where Ukip finished just 617 votes behind Labour in a 2014 by-election, Oldham has a significant Asian population (accounting for 26.5 per cent of the total), which is largely hostile to Ukip and likely to remain loyal to Labour. 

Expectations are now so low that a win alone will be celebrated. But expect Corbyn's opponents to point out that working class Ukip voters were among the groups the Labour leader was supposed to attract. They are likely to credit McMahon with the victory and argue that the party held the seat in spite of Corbyn, rather than because of him. Ukip have sought to turn the contest into a referendum on the Labour leader's patriotism but McMahon replied: "My grandfather served in the army, my father and my partner’s fathers were in the Territorial Army. I raised money to restore my local cenotaph. On 18 December I will be going with pride to London to collect my OBE from the Queen and bring it back to Oldham as a local boy done good. If they want to pick a fight on patriotism, bring it on."  "If we had any other candidate we'd have been in enormous trouble," one shadow minister concluded. 

Of Corbyn, who cancelled a visit to the seat today, one source said: "I don't think Jeremy himself spends any time thinking about it, he doesn't think that electoral outcomes at this stage touch him somehow."  

George Eaton is political editor of the New Statesman.