The psychopathology of fantasy economics

Here’s a fascinating Op-Ed piece by Paul Krugman in the New York Times, about the current vogue for fiscal austerity.

Krugman argues that the wave of Government budget-cutting has no rational economic basis.  He points to two factors – fear of speculators and a belief that confidence will bring recovery.  He mocks both.

Here in the UK we’ve had the fascinating spectacle of the ludicrously-named Office of Budget Responsibility claiming that although more than half a million jobs will go as a result of public spending cuts, more than two million will be created over the lifetime of the Parliament as confidence returns and the state gets off the backs of the productive sectors of the economy.

It’s fantasy.  There’s some sensible analysis here but the facts are simple; even in the boom times the private sector was creating jobs at a fraction of that rate and cuts in public spending hit the private sector too – after all the people who build roads and schools, supply hospitals and staff school canteens and even provide bureaucrats with pens to push are all in the private sector.   What’s going to happen to these jobs?  In what way is the removal of the allegedly dead hand of the state going to benefit these people?

It’s government by wishful thinking.  George Osborne may like to present himself as a realist, but actually his outlook is indistinguishable from Mr Micawber, hoping against hope that something will turn up.  His evidence base is about as solid.

But of course it’s what the Tories and their Lib-Dem useful idiots want to believe.  After everything that has happened, after bankers’ crashes and speculative commodity and housing bubbles booming and busting, it’s pure moonshine.  Krugman points out that there is no evidential basis for the claim that shrinking the state will increase confidence, and plenty of evidence for the opposite.  The denial is astonishing.

The denial about the deficit is most striking of all.  There is no more devious con-trick than Osborne comparing the UK deficit with Greece; the debt is a smaller proportion of GDP, it matures over a longer period, and the claim that we’re next is about as plausible as Krugman’s attack of the bond vigilantes.

The only rational explanation for the economic policies of the coalition is that they are driven by the purest ideology – it goes beyond the 1980s because these people seem to be entirely lacking in Margaret Thatcher’s unerring instinct for picking the fights she knew she could win and leaving well alone the things where she was on to a loser (it was when she lost that instinct over the Poll Tax that her downfall came).

It’s a truism of political life that hubris and delusion set in for most Governments late in their life – in this one it’s happened after a matter of weeks.  If the outcome were not bound to be so desperately damaging in terms of our society, it would almost be worth it to see the excuses they deploy as the double dip turns into a plunge.

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