Must-Read: I think that Simon Wren-Lewis is not nearly hard enough on Britain’s austerians here–if the Bank of England was indeed confident in the power of unconventional monetary policy, it was so without warrant. Elementary benefit-cost considerations strongly argued for waiting until a strong recovery was well-established before attempting to tackle not the desirable short-term deficit but the long-term funding challenges of the social insurance state:
The Path from Deficit Concern to Deficit Deceit: “I have always written that the arguments in 2010 for focusing fiscal policy on reducing debt were understandable…:
…They were wrong, but you could understand why reasonable people might make those arguments…. The problem of the recession appeared to be over, recovery was under way, and the Bank of England seemed confident in the power of unconventional monetary policy. It seemed reasonable to move attention to the deficit. So when 20 economists and policy makers wrote in February 2010 apparently supporting George Osborne’s deficit reduction plans, I was not surprised. The majority… disagreed, and we were right, but I could understand…. One of those signing that letter was Lord Turnbull…. By August 2012 around half of those that signed the letter had the good sense and honesty to backtrack….
[When the] Chancellor… was re-elected in May, it was for a programme of renewed austerity…. Lord Turnbull had the opportunity to question the Chancellor….
I think what you are doing actually, is, the real argument is you want a smaller state and there are good arguments for that and some people don’t agree but you don’t tell people you are doing that. What you tell people is this story about the impoverishment of debt which is a smokescreen. The urgency of reducing debt, the extent, I just can’t see the justification for it.
A former head of the civil service, who had initially supported Osborne on the deficit, was now accusing him of deliberate deceit. Big news you might have thought. And quite a turnaround in just 5 years…. Either Osborne is just stupid and cannot take advice, or he has other motives. George Osborne is clearly not stupid, which leaves only the second possibility. It is therefore entirely logical that Lord Turnbull should come to agree with what some of us were saying some time ago. What a strange world we are now in. The government goes for rapid deficit reduction as a smokescreen for reducing the size of the state. No less than a former cabinet secretary accuses the Chancellor of this deceit. Yet when a Labour leadership contender adopts an anti-austerity policy he is told it is extreme and committing electoral suicide. Is it any wonder that a quarter of a million Labour party members voted for change?