https://en.wikipedia.org/wiki/United_Kingdom_government_aust...
> Most macroeconomists now agree that the austerity programme pursued by the Coalition Government in its first two years was both too severe and unnecessary and set back the economic recovery which was underway in the first half of 2010. The Office of Budget Responsibility confirmed that the austerity programme reduced GDP, while the Oxford economist Simon Wren-Lewis has calculated that the Coalition Government's austerity programme cost the average household £4000 over the lifetime of the Parliament and severely damaged those public services which were not ring-fenced.
This was really obvious at the time. The economy was recovering slowly, and then the Tories got elected and induced a recession. It kinda amazes me that this wasn't obvious in advance of their actions, but whatevs.
It’s common in hindsight to say “if only labour were elected”
Also worth remembering that in 2015 the country said “we want more Tory”. The coalition wasn’t Tory enough.
https://www.theguardian.com/politics/2010/mar/25/alistair-da...
I have never seen something so revisionary on wikipedia. This is just left-wing propaganda.
There is zero analysis of the macroeconomic context, zero analysis of austery as an economic policy. Just an endless series of newspapers attacking the government in power for the economic consequences of a economic crisis.
One of the most egregious misrepresentations of an issue i've ever seen. Its just writing up what newspapers said; i can't believe it.
Reading that article can you answer: (1) what the economic policies called 'austerity' were? (2) what the economic aims of these polices were? (3) whether these aims were successful? (4) why were these the aims? (5) what were alternative policies?
You could not submit to an academic journal with most of your controversial claims referenced to newspapers. An enclopedia operates at a higher standard of research than academic journal articles -- it should summarise books/etc. about those articles.
This article is essentially poor-quality primary research which quotes MPs and newspapers to argue a case about austerity. That's fine for a BA sociology degree -- it's bad for a MSc, it's disqualifying at PhD level, and has zero plac e in an encylcopedia
https://www.ft.com/content/1670a3d2-880f-11e2-8e3c-00144feab...
Hindsight is wonderful, in 2010 the choice was austerity, austerity or austerity, there was no alternate voice, but that doesn’t mean it was the right move
With the exception of Germany post-WW2, has there ever been an instance where austerity was judged to be somewhat successful?
There are hundreds of examples of austerity, which could be added to the wiki page as a success?
That it didnt meet the goals given to it by opposition parties and newspapers is irrelevant.
Reduce the deficit sufficiently to promote confidence in the market for UK debt in order to deliver growth in the economy.
You claim this was overwhelmingly successful?
How? Where would we see evidence of success? Would it show up in a change in bond yield trajectories post GFC? (It doesn’t). Would we see a change in the growth rate of the economy post GFC? (We didn’t).
So how is it possible it was not just successful but overwhelmingly so when we can’t detect the proposed benefits in the observed data?
It was to reduce the increasing deficit from +12.5% GDP YoY to flat, in the middle of essentially a "deficit crisis" caused by the need to bail out the financial industry to prevent a whole-economy crisis.
Arguments can be made about how far and how fast the deficit needed to decrease; but the policy was overwhelmingly successful.
The government was able to maintain non-trivial deficits for a decade after the policy -- precisely because of it. Only people with zero understanding of the issue maintain that there was any non-austerity alternative.
Labour's policy was "less" not different. There was no non-austerity option for the UK, with such dramatic deficit increases -- ie., 25% of GDP in <2yr.
Few other countries experienced this. The US did not.
The financial crisis should've caused a depression in the UK, and a total wipeout of our economy in a whole economy crisis. The bailouts prevented this, then austerity prevented the ensuing deficit crisis.
Both policies were not about "growth" they were about preventing total economic metldown in the UK. We were the worst country in the world affected, these conditions were unique and severe.
George Osborne originally said:
>> Mr Deputy Speaker, let me now turn to the measures in the Budget designed to deliver this accelerated reduction in the structural deficit. The coalition Government believes that the bulk of the reduction must come from lower spending rather than higher taxes. The country has overspent; it has not been under-taxed. Our approach is supported by the international evidence, compiled by the Organisation for Economic Cooperation and Development, the International Monetary Fund and others, which found that consolidations delivered through lower spending are more effective at correcting deficits and boosting growth than consolidations delivered through tax increases.
>> “and boosting growth”
I’m having a hard time seeing this as anything other than intellectual dishonesty on your part.
Given this is HN, I’ll be curious instead of judgemental. Help me interpret what you said about austerity had nothing to do with growth?
> Mr Deputy Speaker, let me now turn to the measures in the Budget designed to deliver this accelerated reduction in the structural deficit.
This is in effect an infinite-money glitch, until you overplay your hand and a market upset bankrupts the state (or the state triggers hyper-inflation in an attempt to prevent bankruptcy). Austerity is just a roundabout way of saying "let's get more breathing room by abusing this infinite-money glitch less".
In an ideal world any country would go through periods of austerity to get rid of wasteful spending, before increasing spending again. But of course this is not how politics works: it's hard to sell to voters, and the things that get cut in "austerity" are often not the most wasteful things.
That's how bureaucrats play the game. When an organisation gets their budget cut, they don't immediately look through the services they provide to see which ones can be cut or delivered at a lower cost. The first move is to float stories about cutting their most popular services to generate adverse press for the budget cuts. c.f. local councils in the UK threatening libraries whenever they get a budget reduction (or not as much of an increase as they would like).
In Berlin, we have a district called Neukölln, a poor district accumulated a lot of social and economic problems, such as high levels of violent crimes, drug abuse, a lot of homeless, gang wars etc.
The solutions for Neukölln problems devised by left-leaning municipal and city govs were absolutely fabulous, such as public swimming pools. At some point when it became clear that the district (or rather Berlin in general) is an eternal money pit, it was decided to cut its funding.
What was the response of local gov? Cut unnecessary and redundant services (sarcasm) like school security, drug addiction helping centers among others. Basically what they do is an open blackmailing, "you cut the funds, we are fucking things up", but that's how political blanket-pulling game works. Nobody likes funding cuts, so it's not uncommon that executives, local governments and various institutions sabotaging such initiatives.
He openly admitted that the Conservative party manifesto of 2010 was a lie. That it was totally impossible to do what they promised about the deficit. Now, I'm not sure I remembered the manifesto pledge correctly, but even with that caveat, he still insisted that lying was absolutely acceptable. He refused to accept that normalising lies in this fashion is a problem (I wish I'd asked him about the Boy Who Cried Wolf, but I didn't) and then promptly changed the topic.
If we can fix housing we can fix a lot of what's wrong the UK I think.
Atm in the US, it's 16% of the budget goes on repayments, or ~3.5% of GDP.
Likewise in the UK, it's ~12% at ~3.5% GDP
I suspect it's fairly easy for a society to this level
The debts of governments of this type is about the lowest risk investments its possible to make, and they're treated that way.
But that also means severe economic crises in those countries has an outsized impact. If the US debt were to increase 12.5% of GDP YoY for years, the entire global financial system would melt down -- as US debt is basically the baseline of the entire system
The above goods and services can simply be “stability” relative to the rest of the world, such that wealth seeking a safe haven continues to choose assets denominated in they nation’s currency.
That is really a statement without a real point. Countries can of course print currency to keep covering their debt obligations but that just impoverishes their citizens and means they lose access to debt markets (effectively).
I know people make this statement a lot, but I never really understand what point they're trying to make.
It sounds like they're trying to claim "free lunch" but I don't really know.
Can you name an instance in which a developed country, borrowing in its own currency, has defaulted? I can't, at least not since the end of the gold standard.
If for some internal or external reason people are suddenly only willing to lend to you at 4x the previous cost, your cost-of-repayment will quadruple over the next ~20 years. Having a lower debt-to-gdp ratio gives you more flexibility on how to react to this because lowering your debt by a significant margin becomes one of the viable strategies.
Like, it is true that oversupplying government bonds creates some really nasty economic effects, but so does undersupply. The government budget is not a household budget, and it's simply not true that their debts can or should be paid back.
No. US Treasuries are one of the most liquid and easy to borrow against assets in the world. When institutions buy Treasuries, they use them as collateral to borrow against with new money created by the banking system. This money is then spent in the real economy. That’s very different from taxes.
Ironically one major contributor to government debt today and 200 years ago were war expenses.
[1] https://en.wikipedia.org/wiki/History_of_the_British_nationa... [2] https://data.imf.org/?sk=806ed027-520d-497f-9052-63ec199f5e6...
English kings had a tendency to spend all the money on foreign wars. Take Henry VIII for example:
> Henry inherited a vast fortune and a prosperous economy from his father, who had been frugal. This fortune is estimated at £1,250,000 (the equivalent of £375 million today). By comparison, Henry VIII's reign was a near disaster financially. He augmented the royal treasury by seizing church lands, but his heavy spending and long periods of mismanagement damaged the economy.
> Henry VII had not involved Parliament in his affairs very much, but Henry VIII had to turn to Parliament during his reign for money, in particular for grants of subsidies to fund his wars.
https://en.wikipedia.org/wiki/Henry_VIII#Finances
Hmmm, having said that, the section mentions he spent a lot of money on tapestries, so maybe it was not all war.
Which is technically true, but impossible over the long run for the levels of deficits the US is running now.
And sometimes austerity means stupid spending reductions that would not even qualify as cost savings under any meaningful accounting scheme. You save money on infrastructure maintenance, education, preventative healthcare, mental health services, and youth work, and you don't see any changes in the short term. But in the long term, you get failing infrastructure, a less productive workforce, higher healthcare costs, mental health issues, and more crime.
Instead of cutting fixed spending, it would often be less harmful to cut discretionary spending – the programs the current government uses to achieve its policy goals. But of course no government wants to do that. People get into politics to change something, not to manage the existing system.
Austerity is therefore a self-defeating strategy. It does not remove wasteful spending, rather it creates more of it. What states should focus on is what are the best resources to purchase and how that spending should be apportioned, not whether there is money to spend with.
https://www.ons.gov.uk/chartimage?uri=/economy/governmentpub... (source: Figure 1 here: https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe...)
You can see that it was indeed increasing through 2008/2009, although that was largely a one-off thing because of the financial crisis.
The problem is austerity didn't work, and the reason is that it also reduces economic growth (slowing growth of the demoninator - GDP). Without austerity, if we'd spent money on infrastructure, we'd likely have had higher growth, reducing debt to GDP that way.
Plus the fact is the markets were lending the UK money at 1% for very long terms all through the 2010s, so funding a large debt to spend on infrastructure would not have been difficult.
Austerity isnt about reducing debt, it's about reducing borrowing costs.
UK debt went from 50% GDP to 75% in two years by your own graph -- you'll notice that rate basically flatlined when austerity was introduced.
Increasing your debt load by 12.5% *GDP* YoY is an insane situation to be in; austerity was part of the policy response which enabled the UK to continue to borrow.
Ideologues on the left havent address this, as far as i'm aware. Preferring to blame austerity for one of the worst economic crises in modern history.
In the UK, however, austerity has been a persistent policy for over 13 years. Low taxation, low spending, persistent erosion of workers rights. No spending even when times were better, leaving it all the more fragile the next time.
Compare to the US, Canada and elsewhere, which performed strong austerity measures immediately following the 2009 crash, then dialled them back - as per economists recommendations - and recovered much faster than the UK.
What's going on is that the UK population is greying and far older than it once was, and huge portions of the UK budget are going towards paying pensioners, the NHS etc. Worse, the triple lock ensures that this part of the UK budget is essentially inflexible. The perceived "austerity" is jsut a reflection of demographic trends.
Or the country can experience a reduction in the quality of goods and services being delivered, for example instead of being able to see a doctor, some portion of the population is now expected to consult with someone less qualified.
It's high in historical perspective because the austerity years of the 2010s and Brexit choked growth. But we could still choose to spend more on services without being unusual in European terms
Since 1965 companies pay a much lower corporation tax.
Tax to GDP has been a little bit up and down but only recently did it breach the 1970s peaks.
I don’t think this matches with “ Taxation in the UK is currently at the highest levels in recorded history.”
Since it's not straightforward to get figures for before 1965:
https://en.wikipedia.org/wiki/United_Kingdom_corporation_tax...
> Until 1965, companies were subject to income tax on their profits[11] at the same rates as was levied on individual taxpayers
> In addition to income tax, companies were also subject to a profits tax, which was deducted from company profits when determining the income tax liability
> At the time of Hugh Gaitskell's 1951 budget, the profits tax was 50% for distributed profits and 10% for undistributed profits.
> The tax rates fell to 22.5% on distributed profits and 2.5% on undistributed profits by 1957
This means that in 1951, if a company had a profit of 100, the taxes were *at least* (I'm using undistributed profits, not taking into account higher rates, etc.etc.) 52.75
(10% of 100, plus 47.5% of the remaining 90% of 100)
The 47.5% is the standard rate of "nine shillings and sixpence in the pound", per https://api.parliament.uk/historic-hansard/commons/1951/apr/...
In 1959, a company with a profit of 100, would've instead paid in taxes *at least* 40.28
(2.5% of 100, plus 38.75% of the remaining 97.5% of 100)
The 38.75 is the standard rate per https://hansard.parliament.uk/commons/1989-03-03/debates/3cc...
see also: "seven shillings and ninepence in the pound" per https://api.parliament.uk/historic-hansard/commons/1959/apr/...
The current corporation tax main rate is 25% (the small profits rate is even less: 19%)
In any case, the low rate of taxation is only one element of the persistent austerity policies that have been in place since the 2009 economic crash.
In terms of government spending, we have easily-obtainable data on the NHS[2] and those available by thinktanks like IFS[3]. The NHS spending is low (and again consistently lower than our peers in Europe). I find the charts from the IFS interesting because it doesn't show a lot of change in spending year-on-year (relative to GDP) since the '90s, except for the catastrophes.
But the table at the bottom is very interesting. Health £ spending up, but equivalent to 2-3% increase YoY, which barely keeps up with inflation. Education, public order & housing spending are all DOWN in absolute terms, forget about inflation. Defense, social security, transport all increased at a rate less than inflation. (Obviously a huge increase in debt spending recently due to Covid measures.)
That there is long-term austerity exemplified. No myth.
[1] https://www.oecd.org/tax/revenue-statistics-united-kingdom.p...
[2] https://www.kingsfund.org.uk/projects/nhs-in-a-nutshell/nhs-...
[3] https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-gov...
Er, no. The UK currently has the highest tax burden for 70 years.
https://www.spectator.co.uk/article/yes-five-million-are-on-...
Which by definition is austerity.
The austerity policy you're suggesting has been overwhelmingly found to have failed almost everywhere it's been tried. Cutting spending in a downturn creates slower growth, which makes it even harder to recover. The book in OP argues that austerity is not about recovery, it's about disciplining workers.
https://www.theguardian.com/commentisfree/2017/jul/07/imf-au...
Totally agree that austerity as practiced in this country is dogmatic and about keeping people in place.
The most popular theory (and one with some quite good empirical support) is that government should increase spending exactly following a crash or time of economic hardship. That has been the mainstream economical thinking for near a century.
What people mostly disagree with each other is what to do on times of strong growth.
We were borrowing at 1% (basically free money because inflation was higher) and we might have spent that on growth policies, but George Osbourne thought this was a good way to reduce the size of the state, a political decision.
You’re not familiar with Keynes I guess. There are many many well thought out alternatives to austerity that have been shown to work. The problem with them is it’s harder to cushion particular classes from having to bear some of the cost.
Not sure why you’re being so thick about this.
There’s plenty of criticism of Keynes and how his practices are implemented (or whether they should even) but that’s quite a different thing to saying that nobody has any alternatives.
> "Democratic control over economics" looks like people voting for more services and lower taxes.
The services part seems clear but "lower taxes" makes me ask what kind of taxes are we talking, income tax, sales tax, corporate tax, capital gains tax, corporate tax credits, import duties, national insurance (UK government health service levy), wealth tax, etc, etc, etc
There are so many taxes and 100 more exceptions and loopholes and so many vested influences pushing for changes that benefit themselves. The current political processes aren't capable of a systematic review and revamp of all of the taxes.
contra - Denmark, Germany, Sweden...
there are countries that vote for the taxes that allow for supporting the services they want.
And I say this as someone who feels totally screwed over by the Danish tax system, but really your intro blanket statement was just not true.
(Who vote themselves largesse from the public treasury.)
> Indeed, because an oligarchy cannot exist as a permanent form of government. It can only exist until the billionaires realize that they can bribe themselves largesse from the public treasury
There is always an equilibrium point. The oligarchs won’t suck the state’s teat to the point where the state collapses.
Given that the 'cost of government borrowing' is a policy setting, there can therefore never be a case for 'austerity'.
See Japan for details.
There is no traditional market in government bonds. The only aggregate alternative to the fixed rate is the expected path of the floating rate and the floating rate is set by the central bank. Which we can easily set permanently to zero once we reject the failed 'twin star' economic hypothesis and accept the 'price anchor' hypothesis.
Or Argentina.
Yes. And then they see the consequences.
Coddling the people is not going to make our governance better. Do you prefer that an elite nanny the people?
That is not why austerity happens, at least in recent history:
* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
During the 2010s, when rates were at an all-time low, Very Serious People were going on and on about "expansionary austerity" to boost the economy:
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
During the COVID crisis deficits grew rapidly and the cost of borrowing did not change. This only happened after the crisis was over, and as a policy choice, not necessity. Japan never increased interest rates and its deficit has continued to widen.
The credit markets do not sustain the UK. It is the other way around. Without the UK state there would be no credit markets, at least not in GBP.
I think the core problem is that it is your thinking that does not map to any observed reality.
Austerity occurs when the cost of government borrowing becomes so high governments are would be functionally unable to operate in the medium term without brining it down.
After the finance crash the UK was increasing it's debt load at something like 200bn GBP/yr, iirc. A rate that credit-nervous markets wouldnt sustain cheaply.
Austerity is the way the ideologues talk about the consequences of economic collapse without having to learn anything.
What you never hear from them is alternative policies that address the specific economic problems periods of austerity are solving. You hear instead about ever more elaborate abstractions that ever less map on to any observed reality.