New York Times columnist Paul Krugman, from whom Bernard Hickey* and Gareth Morgan seem to learn their alleged economics, reckons the British government’s “austerity” programme has hindered Britain’s recovery—that if it had followed instead the profligate deficit spending model it did in the 1930s, that it might have enjoyed seeing recovery in the four years it did then. Says the dickhead:
It turns out that by one important measure — changes in real GDP since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British GDP had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.… Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy. And it's a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.
The difficulty for this analysis is that it’s both wrong in fact and wrong in theory. In short, it’s a fiction. A complete pack of lies. Let me explain.
The first point to note is that on the two occasions he cites, Britain has followed precisely the opposite approach to the one he describes.
Despite some very modest spending cuts [records Sean Rosenthal at the Mises Daily], it is now taxing more and spending more than it ever did. Although British spending as a percent of GDP fell mildly from 51.1 percent in 2009 to 49.8 percent in 2011, this level still signifies a massive increase in spending from 2007 levels of 43.9 percent of GDP. Similarly, although the British deficit as a percent of GDP fell from 11 percent in 2009 to 9.4 percent in 2011, this deficit still amounts to a huge surge compared to the 2007 level of only 2.8 percent and, with the exception of this recession, exceeds all other deficits in Britain since World War II.
This is not austerity. And in the 1930s it reduced spending, balanced its budget and lowered its debt. To be precise:
After leaving the gold standard in 1931, the British government balanced its budget and reduced spending as a percent of GNP every year until 1935, reducing government spending from a high of 28.8 percent in 1931 to 24.4 percent in 1935. Although not ideal — because part of the reduction included tax increases — this policy succeeded in creating small budget surpluses every year from 1929 through 1936…
This is not deficit spending.
To grasp this first point then: the historical record is precisely the opposite to the one this
lying sack of shit Nobel-Prize-winning laureate describes.
There is one point however that the
lying sack of shit Nobel-Prize-winning laureate does get right however: Four years into the Depression, the British economy had indeed regained its previous peaks (even while the deficit-spending US was about to go into another trough).
But this recovery--in Britain as in Canada, Australia and NZ—and in the US in the now-forgotten 1920/21 Depression—was not begun by the prescription of profligate deficit spending proffered by this Keynesian crank. It was due to the very austerity he writes to decry.**
* * * * *
* Bernard Hickey maintains NZ’s newly minted Reserve Bank began money printing in 1936 to build houses, and this not only put a roof over every head and a steak on every plate it was the singular cause of NZ’s economic recovery.
The trouble for this
lying sack of shit second-rate business columnist is the same as it is for Mr Krugman: the facts simply don’t bear his story out.
The fact is, as the table above and graph below suggest, that the Commonwealth countries were already heading out of the Depression when the First Labour Government and Reserve Bank began their experiment (real GDP in 1933, before the Reserve Bank had been invented, had already exceeded the figure for 1929), and the local recovery continued despite (not because of) the Reserve Bank’s irresponsible paper printing producing an inflation rate of around fourteen percent!
Here as elsewhere, the reason for the recovery was not profligacy, but austerity.
* * Thus, in a different world, we might say with more authority than the
lying sack of shit Nobel-Prize-winning laureate, that had the prescription of austerity actually been followed today here and elsewhere we might have seen recovery in February 2009!
* * * Just for the record, or perhaps for the enlightenment of Messrs Hickey, Morgan, Tom Cobley and all, here below are seven methods by which to delay recovery. All of which have already been followed!
When markets need to correct, when real savings are being consumed on malinvestments that urgently need to be closed off, then here's what you can do to make sure the necessary correction won't happen:
- Prevent or delay liquidation by propping up shaky businesses and shaky credit positions.
- Further inflate the money supply, creating more malinvestments and delaying the necessary correction.
- Keep wage rates up --or keep money wages constant when prices start falling (which amounts to the same thing) -- which in the face of falling business demand is a sure recipe for unemployment.
- Keep prices up (by means of the likes of green-plated building regulations) or add new costs to struggling businesses (such as the dopey Emissions Tax Scam), delaying the necessary corrections that will make businesses profitable again.
- "Stimulate" demand by spending on "infrastructure" projects just to make it look like the government is doing something -- when what that something actually does is to take money from profitable businesses in order to bid resources away from struggling businesses.
- Discourage saving and investment by increasing government spending (all of which is consumption spending) and maintaining high tax rates.
- Subsidise unemployment with make-work schemes paid out of money from profitable businesses that bid resources away from struggling businesses, delaying the shift of workers to fields where genuine jobs would otherwise be available.
As Murray Rothbard points out in America's Great Depression (from which I draw the above seven points) when you list logically the various ways that government could hamper market adjustments and hobble the adjustment process, you find that you have precisely listed the favourite "anti-depression" arsenal of government policy—and of lying sacks of shit.
But then, stimulus is really motivated by economics, but politics.