“If this plan is working, what would a failing one look like?” So asked Martin Wolf in his column in the Financial Times in response to British Prime Minister David Cameron’s recent speech insisting that his austerity policy was right, is right and is succeeding.
Simon Wren-Lewis, an economist at Oxford, went through Mr. Cameron’s assertions in some detail online, among other things catching him more or less lying about what the Office of Budget Responsibility — roughly speaking the counterpart of the Congressional Budget Office in the United States — actually said about the impact of austerity on growth. I was particularly struck by the way Mr. Cameron is still claiming that Britain’s low interest rates show that his policy is successful and necessary.
This is a bit like the high priest sacrificing a virgin once a month to ensure that the sun keeps rising, then claiming that the fact that the sun has risen proves that the sacrifice was indeed necessary. The obvious test is to compare Britain’s rates with those of other countries; if Britain’s 2.07 percent bond yield validates his policies, does the United States’ 2.05 percent yield validate President Obama’s? Or better yet, does France’s 2.10 percent yield validate President Hollande’s?
Or is the point, perhaps, that every country that borrows in its own currency (or, in the case of France, finally has a central bank willing to do its job by providing liquidity) can now borrow cheaply?
The trouble, of course, is that Mr. Cameron’s political career and his very identity are now totally bound up with his austerity crusade. He’s a prisoner of his past, who can’t and won’t change course. Instead, his incentives are all about gambling for redemption — sticking with the policy in the hope that something turns up that will somehow make him a hero.
Will Continue …
Until morale improves.
So said José Manuel Barroso, the president of the European Commission, in a letter to the European Council in which he argued that what Europe needs is — surprise — more austerity.
I’m tempted to do a point-by-point analysis of the data that Mr. Barroso presented to back up his claim that adjustment is proceeding at an acceptable pace. We know, for example, that what looks like a surge in Irish competitiveness is in large part a compositional effect, in which the relative robustness of highly capital-intensive industries (pharmaceuticals) creates the illusion of a productivity boom. We also know that even where there are genuine improvements in export performance, as in Portugal, they aren’t contributing enough to aggregate demand to prevent a downward spiral from austerity.
But enough; clearly, the commission won’t change course until catastrophe strikes.