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How Iran went nuclear

David Patrikarakos tells the remarkable story of the Islamic Republic’s nuclear programme, which beg

In the beginning there was the atom bomb and the world-changing destruction of Hiroshima and Nagasaki. But the atom was also a renewable energy source that could lift countries into modernity. It had to be harnessed, not simply abandoned. In the gloom of the postwar period, the world looked to Washington for guidance on how to recalibrate the global order. This duly came with President Eisenhower’s 1953 Atoms for Peace programme – the first non-proliferation initiative. Atoms for Peace gave countries the equipment to start their own peaceful programmes regulated by an international agency devoted to the job (it became the IAEA). Washington became the source of all nuclear materials, and it found a willing recipient in Iran.

Akbar Etemad is a nuclear physicist in his seventies, long-faced, short-tempered, and of immeasurable importance to Iran’s nuclear history. In 1965 he returned home from studying in Paris with many qualifications but no job. According to the press, a five-megawatt research reactor – a gift from Atoms for Peace – sat in Tehran University,and sat. A lack of expertise had forced work to stop and Mohammad Reza Pahlavi, the Shah of Iran, was angry. Etemad came to the shah’s attention and completed the reactor in 1967. “It was no big deal,” he told me one morning over coffee in London. “The nuclear programme at this stage was almost non-existent.”

After Etemad completed the reactor, he left to work in higher education for a few years. But it was not his last contact with nuclear power. Following the 1973 oil boom the shah called him back: full steam ahead was the order. Etemad told him that the programme needed something hitherto missing: a plan. With a limitless budget and the royal blessing, he created the Atomic Energy Organisation of Iran (AEOI) in 1974. He was also made deputy prime minister. From that point until the revolution of 1979 the two met at least once a week. “No matter what he was doing, he still found time to discuss the programme,” Ete­mad says. “It was so close to his heart.”

Why? Officially, oil. During the 1970s Iran was the third-largest oil producer in the world. It was a valued but finite commodity on which to base a nation’s wealth. The shah was clear on this dilemma: petroleum and gas were simply too valuable to burn for fuel. This is important. First articulated more than 40 years ago, it remains the official line on atomic power under the Islamic Republic today. It has economic cogency – domestic use of fossil fuels drastically affects foreign exchange earnings, as every barrel burned is a barrel not sold. From the beginning, nuclear energy was seen as the replacement. “It is a shame to burn the noble product [oil] to run factories and light houses,” wrote the shah in 1961. “We plan to get, as soon as possible, 23,000MW [megawatts] from nuclear power stations.”

There was also an unspoken reason. Glory. Like all dead kings, even successful ones, the shah is condemned to dramatic irony. Ever since Nader Shah returned to Tehran with a stolen Mughal throne in 1739, the Peacock Throne has symbolised the royal house of Persia. For Mohammad Reza Pahlavi, royal glory was foreign policy, and he was determined to make the metaphor a reality: the great tail feathers would unfurl in all their Pahlavi splendour and the world, or, at any rate, the region, would marvel at the display.

The shah had named his country “the Empire of Iran” and “modernisation” was the path to its imperial reinvigoration. To Mohammad Reza Pahlavi, modernisation signified westernisation – and the two were insuperable, as well as inseparable. The means was technology, and especially nuclear technology, the vanguard of modernity. He saw a world where Britain and the US had assumed leadership in nuclear power. Technology brought prestige; it was a laurel for the royal breast, but one that could only be pinned there by a western hand.

Etemad remembers all this. At a general conference of the International Atomic Energy Agency in the late 1970s he was called on to vote and called his king for instructions: “His Majesty said, ‘You should vote as the developed countries do,’” Etemad says. “We had to act like a western country. This was the point of the programme – to bolster us rapidly into a developed country, to get into the western world.”

And he wanted to do it fast. Despite Etemad’s best efforts to build up an Iranian scientific base, the shah wanted to increase western links. In March 1974 France ratified an agreement for five reactors, with a further two to be built under licence from the US firm Westinghouse. That year Etemad also signed a contract for two water reactors from the West German firm KWU for a proposed plant at Bushehr, to supply electricity to the south-western city of Shiraz. In 1975, Iran also acquired a 10 per cent stake in Eurodif, a uranium-enrichment venture involving France, Belgium and Spain. As his father, Reza Pahlavi, had done with the Anglo-Persian Oil Company, the shah bound Iran to the west with commercial ties. This time the prize was not oil, but nuclear energy. Such is the nature of progress.

Ardeshir Zahedi, holding a pen in one hand and a tightly bound five-page document in the other, sat behind a desk at the Foreign Office in London between three civil servants who stood looking at him expectantly. It was 1 July 1968, Zahedi was foreign minister of Iran, and he had just signed the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). “It was a historic moment,” he says from his home in Montreux. “I telephoned His Majesty in Tehran and told him it was done. He was very pleased. We had signed it the day it opened for signature. He was determined to show that we were an honourable country.” As far back as 1968, the seeds of today’s impasse between Iran and the US and other western nations were sown. It’s there in all the details.

“We should never have signed it,” complains Etemad. “It was not a fair treaty. I never would have allowed it. Only small countries joined – Burkina Faso, Nicaragua, the Fiji Islands. The countries that actually had a chance of getting nuclear power – India, Pakistan, Israel – they stayed out. Only we signed.”

One evening in late 1976, Akbar Etemad was having an argument with the US secretary of state, Henry Kissinger. Kissinger had come to Tehran to promote a plan for US regional nuclear fuel centres in the Middle East, intended to reduce the need for other nations to develop their own sources. Etemad repeated the reasons for his refusal: national sovereignty, the right to pursue indigenous enrichment under the NPT, arguments that would reappear 30 years later. It didn’t seem to be working.

He tried a different tack. “I said, ‘Mr Kissinger, I’m going to talk to you now as a Harvard professor. Regardless of anything else, can you imagine Iran sitting around a table with Iraq, Saudi Arabia and Egypt and agreeing on anything – let alone nuclear fuel?’ Kissinger leaned back in his chair; he thought, and he said: ‘You’re quite right, it is impossible.’”

Matters only got worse with the arrival of Jimmy Carter and the tightening of US exports of nuclear materials. “This man, Carter!” became shorthand for the new president. “The shah never really liked Democrats,” says Etemad. “He much preferred Nixon.”

And nuclear weapons? In public, the shah rejected them. “The idea that I want nuclear weapons is ridiculous; only a few silly fools believe it,” he said in 1976. As an NPT signatory, he could not say anything else. More pertinently, infrastructure was so basic that any bomb would have taken years. Until then, why rock the boat?

But self-interest played a part, too. In the years after 1973, as money, hubris and repression increased in equal measure, so did the shah’s need for a powerful military. By the end of the 1970s, Iran was what he wanted it to be: a Gulf superpower. “He always said we didn’t need nuclear weapons because of our military strength. Nuclear weapons might actually force others to go nuclear and wipe out our conventional arms advantage,” says Etemad. “But he also said if things ever changed – if our security was threatened – he would give the order. I’ve no doubt that were he here today he would say, ‘Go’; and I would.”

The Iranian psyche is cleaved, bloated with a sense of the country’s historical importance but scarred by the humiliations of the not-so-distant past. The division of Iran into spheres of influence by the British and the Russians during the Great Game, the overthrow of Prime Minister Muhammed Mossadeq in a British and American coup in 1953, the constant meddling of foreign powers – all burned into the popular imagination. The shah believed he was a “western” ruler, but his story is that of modern Iran itself: the desire to escape from the “colonial” father and strike out in the world. His means was to imitate his western role models. The nuclear programme rested on this vision, an empyrean charge into modernity.

But a vision is just that. It will always contract in the face of reality. In the end, royal profligacy and repression – reality – were too much; and the people, radicalised by the exiled Ayatollah Khomeini, revolted. In the end, as the regime crumbled, it retreated on many of its policies, including the nuclear programme – now nothing more than the vulgar toy of a hated ruler.

In 1979 the revolution changed everything. Iran was tranformed from an autocratic and pro-western monarchy into an isolationist and populist Islamic republic under the clerical rule of Ayatollah Khomeini. Khomeini brought a new day with a new system of government, and a deep mistrust of the international community. The new path lay not just in 7th-century Islamic history, but 19th- and 20th-century Iranian history. During the revolution crowds marched through the streets holding banners adorned with pictures of Mossadeq and denounced the shah as Washington’s puppet. Iran would no longer be “enslaved” by “imperial” powers, dependent neither on “the godless east nor the tyrannic [sic] blasphemous west”. And it would be self-sufficient.

With the nuclear programme, the Islamic Republic had inherited a symptom of Pahlavi excess. The new government, led by Prime Minister Mehdi Bazargan and desperate to distance itself from the shah’s unpopular measures, installed the excitable Fereydun Sahabi as head of the AEOI in April 1979. He immediately announced that the programme was seriously over budget. The Bushehr reactors in particular had almost doubled in cost to $7bn. They had also created “a consumer market for the industrial products of other countries”. Sahabi declared that a “vicious” reliance on foreign manpower would end.

In future, the programme would “enhance the country’s knowledge of nuclear energy with a view to achieving self-sufficiency”. But this was not enough. On 17 June 1980, officials confirmed the suspension of Bushehr, announcing on Iranian radio that “the construction of these reactors, started by the former regime on the basis of colonialist and imposed treaties . . . was a cause of greater dependence on imperialist countries”.

No longer a banner of Iranian internationalism, the nuclear programme was now viewed as the continuation of colonialism by other means. The atom was not merely too expensive, it was ideologically unclean. In late 1979 the government announced the unilateral abrogation of contracts with KWU and the French company Framatome. Naturally, this did little to improve the country’s foreign relations. Both sued.

Nuclear power is always a statement of identity. In rejecting the programme, the revolutionary government rejected what it symbolised politically: Pahlavi ambition. It rejected a particular form of statehood. The shah had been a western poodle. Now defiant and self-sufficient, the Islamic Republic had found a new means by which to make its way in the world.

But God, alas, does not supply electricity or pay wages, at least not directly. Power shortages and an idling AEOI made energy once again a high priority for the government. In early 1980 Sahabi was dismissed and Reza Amrollahi – a somewhat more reasonable man – replaced him. The decision was taken to start the programme again and, in early 1982, legal disputes with KWU reached a preliminary agreement at arbitration. Agreement with Framatome followed. Tehran was willing to reconcile and beginning to understand that theology wasn’t enough.

In June 1982, KWU agreed to complete at least one of the two reactors at Bushehr and the engineers returned to the site that year. Officially ideology still ruled, however, and the government justified this U-turn with the need for “native expertise”. Through rhetorical sleight, indigenous capability and self-reliance now justified not the abandonment of the programme, but its restart.

The moves came to nothing. KWU was reluctant to work on Bushehr while the Iran-Iraq War – which had begun in September 1980 – was still raging. In May 1984 it said that it would complete the project only when the war ended. The Iraqis had struck the Bushehr reactor, and were to do so a further seven times before the 1988 ceasefire. KWU declined repeated requests to resume construction of the plant, which lay dormant until the Russians signed an agreement in 1995 for its completion. Western co-operation had ended.

The Islamic Republic, however, had bigger problems. It had raised its flag with the disgraceful kidnapping of diplomats at the US embassy in Tehran during the 1979-80 hostage crisis – an act that alienated the onlooking world, including a United States desperate to keep the friendship of its Persian ally. Outraged, President Carter had imposed an array of economic and military sanctions on Iran as well as tacitly supporting Iraq in the war. After the decision to restart the nuclear programme, agreement had been sought not only with contractors but also the IAEA, which agreed to help with a proposed reactor at Isfahan’s nuclear technology centre. But US pressure forced it to back out. In response, Iran turned to the developing world for assistance – Pakistan, China and South America were the destinations. Iran was now doubly damned, first by its own revolutionary self and then by association.

The Islamic Republic was now poorer and weaker and, crucially, alone; it had more humiliation, more rage, and more God. Both the invasion by Iraq and the Iraqis’ subsequent use of chemical weapons against Iranian soldiers had been met with exuberant inactivity by the UN and the international community in general. In turn, all institutions were now seen as tools of the west. Khomeini had been right.

Cherchez l’Amérique – if there is one lesson from postwar international politics, it is this. Washington had been of central importance to the shah’s programme. It was to be so again, but for different reasons. Necessity had restarted nuclear power under the Islamic Republic. Pride was now to resurface. But it was an altered pride. However much the world “persecuted” Iran, it would not win. “Despite the problems resulting from America’s unfair victimisation of the Islamic Republic and the world’s blindness in the face of repeated violations by the Ba’athist regime,” said a sombre Amrollahi in 1987, “there have been remarkable improvements in the scientific and industrial fields in our country.”

The nuclear programme had become symbolic once more – this time not because it was something a developed, western country had because it was developed and western, but something a developing country had because it was palpably non-western and defiant. Like the soldiers on the Iraqi battlefields, the Iranian nuclear programme embodied a nation’s refusal to be cowed.

Officially, the Islamic Republic rejected nuclear weapons. It went further – it urged disarmament. For Iran’s representative to the UN in October 1986, nuclear weapons created a world where “each day the big powers become increasingly dominant at the expense of the oppressed nations”. They were synonymous with colonisation, the pri­meval impulse of strong against weak.

Iran, however, was also at odds with the world’s superpower and at war with Iraq, which, under Saddam Hussein, had been building its own nuclear capability until the 1981 Israeli attack on its nuclear reactor at Osirak. It had good reason to develop weapons and it is inconceivable that the mullahs did not consider the option.

But the programme was a shambles, the Bushehr reactors stood uncompleted, and the war was draining the country’s resources. There was simply no chance of getting them.

The truth was, as far as the world was concerned, it didn’t matter. In the mid-1980s the US urged a worldwide ban on the sale of nuclear materials to the Islamic Republic. In a declassified report of April 1984, the state department outlined its refusal to “consent to the transfer of US-origin nuclear equipment, material or technology to Iran”. But, in the very same document, it conceded that “the reactors at Bushehr . . . are not particularly well-suited for a weapons programme . . . we [also] have no evidence of Iranian construction of other facilities that would be necessary to separate plutonium from spent reactor fuel”. The state department admitted that it was denying technology to a state that could not pose a genuine threat.

The US, scarred by the hostage crisis and later the Iran-Contra affair, now could not view Iran rationally. In 1984, a US senator from Ohio, John Glenn, called for a ban on the export of all nuclear materials to certain countries. With no evidence of wrongdoing, he merely invited all to “imagine a world in which the Ayatollah Khomeini can have nuclear weapons and we face . . . state-supported nuclear terrorism”.

To the Iranian people, fed by government propaganda, the US is denying them their “rights” in the best tradition of imperialism. They have come to see their programme as a totem of their country’s independence. In the words of the former nuclear negotiator Hassan Rohani, the people are united in “wanting nuclear technology because the US says we can’t have it”. The Bush administration’s bellicose rhetoric, by stirring the nationalist impulse, served only to push a young and vibrant population yearning for social freedom into the arms of a moribund regime fearful of its own country’s demographics. The Iranian people have become reluctant spear-carriers for a regime they dislike, based on theological ideals they distrust, herding them into a future they dread.

The Islamic Republic is a dismal and brutal regime, but it is not stupid. That much is clear from the past seven years. Compared to the meanderings of the western coalition, its diplomacy has been balletic. It has exploited differences between a hawkish Washington and a more conciliatory EU, played on its relationship with the Chinese and the Russians, and always expressed a willingness to negotiate – even if only as a stalling tactic. And all the while it has continued enriching. On 11 April 2006 President Mahmoud Ahmadinejad announced completion of the nuclear fuel cycle on a laboratory scale by successfully enriching uranium to a level suitable for civilian purposes (3.5 per cent). A year later Iran had enriched uranium on an industrial scale. It has mastered the fuel cycle.

As Iran continues onwards, tensions have increased, seemingly in line with Ahmadinejad’s unpredictability. The president has been a gift to those in Washington who urge military strikes. From the mercantile pragmatism of the former president Akbar Hashemi Rafsanjani to the eloquence of Mohammad Khatami, the variegated friezes of Iranian diplomacy have taken firm shape in the blacksmith’s son from Aradan. He is the hawk’s dream, with his lick of black hair, his beard and bewildering rhetoric.

Tehran has been dishonest about its programme. It has repeatedly hidden the scope and nature of its activities, and although it has not violated the NPT according to the letter of the law, its co-operation has been reactive not proactive, and consistently in bad faith. Yet it is its rhetoric more than anything else that has been used to support the notion that the Islamic Republic is a “rogue” nation. It continues to be seen as merely the sum of its words – and no state is more open to damaging quotation.

The north Tehran skyline is jagged with the steel cages of half-finished buildings. Frozen cranes dot the horizon, a dumbshow of overreaching. As with everything in modern Iran there are huge anomalies with the nuclear programme – the Bushehr reactor, when it comes online, after 30 years and billions of dollars, will supply only about 10 per cent of Iran’s electricity needs. In many ways, it is almost a parody of an efficient, financially viable programme. This strengthens the belief among many that it is a cover for weapons, but the truth is more complex – and more prosaic.

In 1989, reflecting on the Iran-Iraq War, Rafsanjani declared that “the world does not respect its own resolutions and closes its eyes to the violations and all the aggressions committed in the battlefield”. The lesson was stark: Iran could trust only Iran. “We should fully equip ourselves both in the offensive and defensive use of chemical, bacteriological and radiological weapons,” he continued. The war is over. But as with Mossadeq, as with the Great Game, it is clear that Iran has internalised these feelings of abandonment and mistrust. Never again will foreigners dictate to Iran; never again will it accept restrictions on its behaviour – certainly not on its “legitimate right” to enrich uranium; never again will it be weak.

Iran faces practical dangers, too. The US has maintained a large military presence in the Middle East since the first Gulf War in 1991. Saudi Arabia and the UAE house numerous US bases, all within easy striking distance of Tehran. In 2001, for Operation Enduring Freedom, thousands of US troops gathered in Afghanistan on the country’s eastern border. The overthrow of Saddam Hussein in 2003 removed a danger but led to yet more US troops massing, this time to the west. Now add the presence of US soldiers in Uzbekistan and Tajikistan: encirclement. There is a joke that has done the rounds in Tehran for some time. It goes like this: “There are just two countries in the world that have only the US as their neighbour: the other one is Canada.”

Surrounded by a self-declared enemy that has labelled it “evil” and supports “regime change”, what is Iran to do? It can never hope to compete with the US in conventional warfare – nuclear weapons might be the only credible alternative. In 2001, Iran, through back channels, helped the US in its war in Afghanistan, providing intelligence and offering to search for US pilots shot down over its airspace. The reward was a place in the “Axis of Evil”. Meanwhile, Pakistan harboured the Taliban for years only to be saluted by Colin Powell as an ally in the global War on Terror. Many in Tehran have concluded that the White House treats nuclear states differently.

But whether this will translate into a bomb is still uncertain. In December 2007, the US National Security Council produced its annual intelligence estimate, in which it judged with “high confidence” that Iran had halted any possible weapons programme in 2003. Even the paranoid US security Establishment believed that the nuclear programme was a puny target for the US. This dampened Washington’s appetite for military strikes, but not Tel Aviv’s. “Israel views Iran as an existential threat,” a senior Israeli diplomat told me recently. “We are certain Tehran wants the bomb – this cannot happen.”

But might any military action not be a cause for war? “Israel is already fighting a war with Iran through Hezbollah in the north and Hamas in the south. We seek a diplomatic solution; we are not trigger-happy. But, I repeat, Iran cannot get the bomb.”

Iran now has a stockpile of low-enriched uranium. To enrich this to weapons-grade capability it has to run it through its existing centrifuges until the appropriate levels (about 93 per cent) are reached, though this is not easy. In 1989, Rafsanjani might have wished for a nuclear deterrent, but it was impossible. Iran does not yet have the bomb. The country does not want the international isolation that would follow its attainment, but it could be pushed: military attack would accelerate a weapons drive from Tehran.

The Bush administration believed Tehran’s nuclear ambitions were a barrier to dialogue. They shouldn’t have been. The nuclear stand-0ff is not the cause, but the effect of a wider problem, and it is a political one. Barack Obama has made détente with the Islamic Republic his most audacious hope yet. However, to deal with Iran, we must first understand it. The nuclear programme offers us this chance.

The nuclear programme is many things to Iran but most of all it is the expression of a nation seeking a place in the modern world. It is an irony, and a peculiarly Iranian one, that it pursues the one thing that may bring its total isolation from what it wants above all else: acceptance – but on its own terms.

For 30 years Iran and the US have danced together out of step, always joined, never in time. America’s hand was rebuffed by Iran in 1979. In turn, America rejected Iran’s overtures in the 1980s and 1990s. The disputed re-election of Ahmadinejad has disappointed the hopes of many for change, yet things may not be so clear-cut. Earlier in the year Ahmadinejad appeared eager to take credit for the diplomatic opening with Washington, to appear more flexible. The IAEA’s February report judged that Iran’s rate of uranium enrichment had slowed, a possible sign that Tehran was open to negotiation. And there is the chance, however remote, that a second-term president might have learned something from the mistakes of his first.

So far, Washington, in the aftermath of the election, has expressed only tentative unease about the events unfolding in Iran. What is clear is that the White House has abandoned the aggressive rhetoric of the recent past. It is waiting to see what happens in that most unreliable of arenas: Tehran’s streets. Only the US can solve the Iran problem; it alone has the requisite economic and political capital. The next move from either side will be critical.

The wit and wisdom of President Ahmadinejad

On economic policy
There is an honourable butcher in our neighbourhood who knows all the economic problems of the people. I get my economic information from him.

On the Holocaust
They have invented a myth that Jews were massacred and place this above God, religions and the prophets.

On the 9/11 attacks
Could it be planned and executed without co-ordination with intelligence and security services – or their extensive infiltration? Of course, this is just an educated guess.

On nuclear negotiations
Do you think you are dealing with a four-year-old child to whom you can give some walnuts and chocolates and get gold from him?

On homosexuality
In Iran we do not have this phenomenon. I do not know who has told you we have it.

On Israel and Zionism
The Imam [Khomeini] said that this regime occupying Jerusalem must vanish from the page of time.

On the Hollywood blockbuster 300
Today they are trying to tamper with history by making a film and by making Iran’s image look savage.

On his rivals’ campaign tactics
Such insults and accusations against the government are a return to Hitler’s methods.

On humour
Let me tell a joke here. I think the politicians who are after atomic bombs, or testing them, making them, politically they are backward, retarded.

On Barack Obama’s election victory
I would like to offer my congratulations on your election by the majority of the American electorate.

This article first appeared in the 22 June 2009 issue of the New Statesman, Iran

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt