For years, on both sides of the Atlantic, the right berated the left for its economic irresponsibility. In the UK, the Conservatives vowed to maintain austerity until a budget surplus had been achieved. In the US, the Republicans denounced Barack Obama as a reckless spendthrift. The national debt, Senate majority leader Mitch McConnell warned in 2012, was “the nation’s most serious long-term problem”.
Yet in the UK and the US, budget deficits are once more rising — at the behest of right-wing administrations. In the first four months of this fiscal year, British government borrowing increased by more than 60 per cent compared to the same period in 2018. But in his first spending review as Chancellor, Sajid Javid announced a 4.1 per cent rise in expenditure, the largest increase in spending for 15 years (including 3.1 per cent for health, 3.3 per cent for education and 6.3 per cent for the Home Office). For the first time since the Conservatives entered office in 2010, no government department will endure cuts.
The deficit, as Javid reasonably noted, stood at just 1.1 per cent of GDP last year (down from 9.9 per cent in 2010), its lowest level since 2002. But the once-cherished ambition of a budget surplus has been abandoned, even as the national debt stands at 82.4 per cent of GDP. Now, just as George Osborne’s Keynesian opponents once did, Javid argues that ultra-low government borrowing costs (below 1 per cent) mean the state can afford to expand and invest. Austerity, he has tacitly conceded, was always more of a choice than a necessity.
Donald Trump, meanwhile, once vowed to eliminate the US’s $19trn national debt “over a period of eight years” (having branded Obama “the most profligate deficit & debt spender in our nation’s history”). But in office he has proved unable to resist the lure of borrowing. Under Trump, the deficit has swelled to 4 per cent, its highest level since 2012, after dramatic cuts in taxes on the wealthy and corporations and a surge in military spending. The national debt is set to rise by $1.7trn over the next decade, reaching 95 per cent of GDP, its highest level since the aftermath of the Second World War. “Budget Deal is phenomenal … Go for it Republicans, there is always plenty of time to CUT!” Trump declared, taking an Augustinian approach to public spending: “Lord make me chaste, but not yet.”
For both the Conservatives and the Republicans, fiscal conservatism has been subordinated to projects of national greatness: Brexit and Make America Great Again (MAGA). As Trump and Johnson know, after the slowest economic recovery in history, there are few votes in budgetary restraint. One could call it reactionary Keynesianism: higher public spending for right wing, rather than liberal or socialist, ends.
Yet in some respects, Trump and Johnson are merely replicating historic patterns. The Republican Party has long preached fiscal conservatism but practised fiscal activism. Ronald Reagan and George W.Bush both presided over higher budget deficits after slashing taxes and ramping up military spending. It was a Democrat, Bill Clinton, who in 1998 achieved the first US budget surplus since 1969 (a surplus of 2.3 per cent would later become a deficit of 3.4 per cent under Bush).
Similarly in the UK, Labour governments have on average been more fiscally restrained than their Conservative equivalents (the last surplus — 1.7 per cent — was achieved at New Labour’s height in 2000/01). Osborne’s frugal reputation was undermined by a lax approach to his own targets. In its hazardous political and economic consequences, austerity contains the seeds of its own its destruction. For states that can borrow in their own currencies, as the US and UK can, and which retain national lenders of last resort (the Federal Reserve and the Bank of England), there are few economic incentives to pursue cuts.
It is not only the US and the UK that are revising their fiscal stances. Even in Germany, where budget surpluses have become a point of national pride, politicians and economists are debating whether to abandon “schwarze Null” (or black zero). As Jason Furman, who chaired the Council of Economic Advisers under Obama, recently observed: “I can’t think of a place in the world today where the argument for fiscal stimulus is stronger than it is for Germany.”
The economy is in danger of recession after shrinking by 0.1 per cent in the most recent quarter, and Germany’s export-based growth model has been hindered by the US-China trade war.
After a decade in which central banks assumed the leading role in promoting growth, Leviathan — the state — is finally rising from the depths. But it will take more than a few years of plenty to compensate for years of famine.