The New York Times’ austerity myth

Yet again, the New York Times fact-checkers seem to have taken the day off. The newspaper yesterday printed an editorial about British economic policy which contained basic errors – identical to those made in a blog which Paul Krugman bashed out last week. It’s worth fisking a little, because Krugman appears to be using the newspaper to create an austerity myth.

‘A year and a half ago, Prime Minister David Cameron of Britain came to office promising to slash deficits and energize economic growth through radical fiscal austerity. It failed dismally.’

This is right, insofar as there was no austerity. The below shows current spending, for every month since the government took power. They overspendt.

‘But no lessons were learned, and instead of reversing course, Mr. Cameron’s Conservative-Liberal Democrat coalition plans to make the pain worse by pushing even tougher austerity measures on the weakening economy.’

Pushing through even tougher austerity? Quite the reverse. Last week’s budget pushed through even higher debt. If anything, the cuts were slightly less ambitious than before (albeit to a statistically insignificant degree).

Now, I’d argue that the absence of a supply-side growth agenda meant the UK economy is vulnerable to the headwinds blowing from Europe. But the story of last week is this: growth evaporated, but the government refused to cut spending any more. Extra debt is the price it paid.

‘With slower growth and consumer demand depressed by fiscal austerity, the Cameron government has had to push its deficit reduction targets years into the future.’

On the contrary, the deficit reduction targets have been delayed not due to austerity but a desire to avoid it. To keep state spending reduction at just under 1 per cent a year.

‘Some of Britain’s economic woes can be attributed to the world financial crisis… But the biggest factor has been the Cameron government’s determination to pursue an untimely strategy of public spending cuts in this adverse economic environment.’

Really? The biggest factor? How about the return of inflation, now running at 5 per cent, the highest in the EU? And as for Cameron’s austerity being ‘untimely’ – well let’s compare that to Barack Obama. He’s doing a brief intake of breath on federal spending this year – and, in so doing, cutting more in a year than Cameron and Osborne feel able to do in four years.

And another graph the New York Times would like even less: these supposed austerity-crazed Brits are actually increasing government debt even faster than Obama. And that’s saying something.

‘Wiser policies, mixing short-term stimulus with longer-term deficit reduction, should have been embraced last year.’

Longer-term deficit reduction? Last week, we had forecasts to 2016-17 – and even then, six years into the future, there is no plan for the deficit to be eliminated. 

‘The Cameron government persists on a failed, irresponsible course that is unlikely to lead to recovery anytime soon.’

If anything, the Cameron government can be accused of talking like Thatcher while acting like Obama. Britain is a self-aware debtoholic, aware of the need for proper spending reform but not quite able to enact it. The New York Times seems to have made that fatal mistake in politics: to judge politicians by what they say, not what they do.