“Words,” wrote John Maynard Keynes, “ought to be a little wild, for they are the assault of thoughts on the unthinking.” I’ve always loved that quote, and have tried to apply it to my own writing. But I have to admit that in the long slump that followed the 2008 financial crisis – a slump that we had both the tools and the knowledge to end quickly, but didn’t – the unthinking were quite successful in fending off unwelcome thoughts.
And nowhere was the triumph of inanity more complete than in Keynes’ homeland, which is going to the polls as I write this. Britain’s election should be a referendum on a failed economic doctrine, but it isn’t, because nobody with influence is challenging transparently false claims and bad ideas.
Before I bash the Brits, however, let me admit that we’ve done pretty badly ourselves.
It began very early. President Barack Obama inherited an economy in free fall; what we needed, above all, was more spending to support demand. Yet much of Obama’s inaugural address was given over to boilerplate about the need to make hard choices, which was the last thing we needed right then.
It’s true that in practice Obama pushed through a stimulus that, while too small and short-lived, helped diminish the depth and duration of the slump. But when Republicans began talking nonsense, declaring that the government should match the belt-tightening of ordinary families – a recipe for full-on depression – Obama didn’t challenge their position. Instead, within a few months the very same nonsense became a standard line in his speeches, even though his economists knew better, and so did he.
So I guess we shouldn’t be too harsh on Ed Miliband, the leader of Britain’s Labour Party, for failing to challenge the economic nonsense peddled by the Conservatives. Like Obama and company, Labour’s leaders probably know better, but have decided that it’s too hard to overcome the easy appeal of bad economics, especially when most of the British news media report this bad economics as truth. But it has still been deeply disheartening to watch.
What nonsense am I talking about? Simon Wren-Lewis of the University of Oxford, who has been a tireless but lonely crusader for economic sense, calls it “mediamacro.” It’s a story about Britain that runs like this: First, the Labour government that ruled Britain until 2010 was wildly irresponsible, spending far beyond its means. Second, this fiscal profligacy caused the economic crisis of 2008-09. Third, this in turn left the coalition that took power in 2010 with no choice except to impose austerity policies despite the depressed state of the economy. Finally, Britain’s return to economic growth in 2013 vindicated austerity and proved its critics wrong.
Now, every piece of this story is demonstrably, ludicrously wrong. Pre-crisis Britain wasn’t fiscally profligate. Debt and deficits were low, and at the time everyone expected them to stay that way; big deficits only arose as a result of the crisis. The crisis, which was a global phenomenon, was driven by runaway banks and private debt, not government deficits. There was no urgency about austerity: financial markets never showed any concern about British solvency. And Britain, which returned to growth only after a pause in the austerity drive, has made up none of the ground it lost during the coalition’s first two years.
Yet this nonsense narrative completely dominates news reporting, where it is treated as a fact rather than a hypothesis. And Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?
Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments and households, and also with the malign influence of economists working for the financial industry, who in Britain as in the United States constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)
Still, it’s quite amazing. The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking – a willingness to understand that this was a special environment, that the usual rules don’t apply in a persistently depressed economy, one in which government borrowing doesn’t compete with private investment and costs next to nothing.
But hard thinking has been virtually excluded from British public discourse. As a result, we just have to hope that whoever ends up running Britain’s economy isn’t as foolish as he pretends to be.