to the equally bogus
"in the long run debts must be managed
as in
"The Power of Austerity over Politicians "
a hollywood jesus ?
" In an earlier post, I reported some speculation by Coen Teulings on why politicians seem to ignore the majority of economists when it comes to austerity. (On the minority of economists that do support austerity, see here.) Mark Thoma responded that it was because austerity gave politicians the chance to pursue ideological goals, and of course he is right for some.
on my ‘final verdict’ on the UK Chancellor George Osborne, and the motivations
of the many on the right in the US and Europe are even more transparent. Yet
that original post began with a discussion of the Netherlands, where there
appeared to be a political consensus in favour of austerity. Even where the
strong austerity proposed by the right is opposed by the left, in both the UK
and US for example, the opposition could be fairly described as tepid. Paul
Krugman and others have often lamented the amount that Obama seems prepared to
give in trying to compromise with Republicans, and the left in the UK hardly
presents a united front on the issue. Borrowing continues to be something to avoid
discussing in public.
So I think there is more to this than just an excuse for some to whittle down the
size of the state. Or to put it another way, we need to explain the weakness of
the opposition to austerity from those who do not have this ideological goal.
This is not to underestimate the influence that those with an ulterior motive
and lots of money can have. I used to think that the idea that the Great
Depression was a liquidity trap that expansionary fiscal policy rescued us from
was received wisdom both among economists and politicians. But I should have
known better from my own experience. Duncan Weldon reminds
us of how the disaster that was Margaret Thatcher’s adoption of monetarism in
the early 1980s has been turned into a myth of her triumph over those foolish
economists.
Politicians can be misled, or can allow themselves to be misled. It is natural for academic
economists to focus on the dissention within their own ranks, either in the form
of influential papers that were enthusiastically received by politicians eager
to believe in expansionary austerity, or economists who appeared to leave their
academic selves behind
them when discussing this issue. And I guess if all economists could form a
united front, with everyone singing the same tune, that might begin to alter
political attitudes. But this is a pipe dream, and even the smallest deviation
from unanimity allows a media that craves
division
to portray the profession as ‘divided’.
I also agree with Henry Farrell and Mark Blyth (the former reviewing the latter’s
new book ‘Austerity: The History of a Dangerous Idea’ here)
that its wrong to try and find a motive for everything in terms of interests
groups. Ideas have a power of their own. But for ideas to have power they need
to resonate. Let me try this out as to why austerity resonates with politicians
even when there is no hidden agenda.
I start with human nature, and the constant debate within ourselves between
current consumption and future wellbeing through saving. What for economics is
just an intertemporal optimisation problem is for most people often a battle of
wills between our schizophrenic selves. In this battle, spending now is often
the temptation of the devil, and saving is the virtue. Now for politicians this
becomes a battle over whether to succumb to deficit
bias. Promising
tax cuts or spending increases without spelling out the implications in terms of
paying for any additional borrowing is what politicians
do more often than not.
of the many on the right in the US and Europe are even more transparent. Yet
that original post began with a discussion of the Netherlands, where there
appeared to be a political consensus in favour of austerity. Even where the
strong austerity proposed by the right is opposed by the left, in both the UK
and US for example, the opposition could be fairly described as tepid. Paul
Krugman and others have often lamented the amount that Obama seems prepared to
give in trying to compromise with Republicans, and the left in the UK hardly
presents a united front on the issue. Borrowing continues to be something to avoid
discussing in public.
So I think there is more to this than just an excuse for some to whittle down the
size of the state. Or to put it another way, we need to explain the weakness of
the opposition to austerity from those who do not have this ideological goal.
This is not to underestimate the influence that those with an ulterior motive
and lots of money can have. I used to think that the idea that the Great
Depression was a liquidity trap that expansionary fiscal policy rescued us from
was received wisdom both among economists and politicians. But I should have
known better from my own experience. Duncan Weldon reminds
us of how the disaster that was Margaret Thatcher’s adoption of monetarism in
the early 1980s has been turned into a myth of her triumph over those foolish
economists.
Politicians can be misled, or can allow themselves to be misled. It is natural for academic
economists to focus on the dissention within their own ranks, either in the form
of influential papers that were enthusiastically received by politicians eager
to believe in expansionary austerity, or economists who appeared to leave their
academic selves behind
them when discussing this issue. And I guess if all economists could form a
united front, with everyone singing the same tune, that might begin to alter
political attitudes. But this is a pipe dream, and even the smallest deviation
from unanimity allows a media that craves
division
to portray the profession as ‘divided’.
I also agree with Henry Farrell and Mark Blyth (the former reviewing the latter’s
new book ‘Austerity: The History of a Dangerous Idea’ here)
that its wrong to try and find a motive for everything in terms of interests
groups. Ideas have a power of their own. But for ideas to have power they need
to resonate. Let me try this out as to why austerity resonates with politicians
even when there is no hidden agenda.
I start with human nature, and the constant debate within ourselves between
current consumption and future wellbeing through saving. What for economics is
just an intertemporal optimisation problem is for most people often a battle of
wills between our schizophrenic selves. In this battle, spending now is often
the temptation of the devil, and saving is the virtue. Now for politicians this
becomes a battle over whether to succumb to deficit
bias. Promising
tax cuts or spending increases without spelling out the implications in terms of
paying for any additional borrowing is what politicians
do more often than not.
Most of the time they can get away with it, but I suspect they either feel guilty
about the implicit deception, or fear they will be found out. So
when the market starts to punish fiscal profligacy, it is as if a parent has
discovered the child’s guilty secret. (The market is seen by many as a
mysterious deity.)
The politician wants to repent (or at least be seen to repent), and atone for
past sins. After eating too many pastries, we go on a crash diet. After deficit
bias, we have austerity.
More cynically, when the market focuses on debt sustainability, it is much harder to
pretend that tax or spending decisions financed by borrowing do not involve
intertemporal trade-offs. Deficit bias becomes much more difficult, so political
fortunes will be maximised by taking the path of apparent virtue. The
electorate, many of whom are recovering from over indulging themselves, will
empathise with political 'self restraint' and reward apparent
virtue.
So here are we Keynesians, telling politicians that they don’t need to go on that
diet just yet - they can put it off until times are good. Indeed, now is just
the time to eat more pastries - it will make you feel better, they are very
cheap at the moment, and you might even lose weight in the long run! It sounds
too good to be true, and just the kind of tale the devil might spin. Give in,
and the all seeing parent/god that is the market will find you out again. So the
politician ignores these siren voices, and buckles down to austerity
