S&P and Economist admit austerity failing


by Sunny Hundal    
8:40 am - April 30th 2012

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The Economist is scared. This week’s front page says the election of Francois Hollande would be bad for France and for Europe.

That sort of scare-mongering is to be expected perhaps, and even its own editorial is a bit hazy on conjuring up proper reasons to oppose Hollande and endorsing Sarkozy.

But what grabbed me was this line:

With a Socialist president, France would get one big thing right. Mr Hollande opposes the harsh German-enforced fiscal tightening which is strangling the euro zone’s chances of recovery.

So the Economist admits austerity is killing Europe. After years of cheerleading for austerity, it has now silently u-turned.

Interestingly, so has Standard & Poor’s ratings agency (h-t @Frances_Coppola), after consistently getting its predictions wrong.

As it downgraded Spain’s ratings last week, it said negative drags on the GDP included:

Implementation of the government’s front-loaded fiscal consolidation plan

Or to put it another way: massive spending cuts are shrinking the GDP, as we said last year. The world’s top ratings agency has only belatedly reached this conclusion.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. BenM

These orgs are intellectually boxed in. Their acceptance of neo-liberalism hamstrings any proper thought or economic insight.

2. Oliver

Will it be enough to make Osborne change economic tack though? Unlikely. It goes against everything he’s ever learned: the instilled privilege of the elite means they’re never wrong. He’ll take the ship down with him before he admits to making a mistake.

It will be New Labour’s fault, the unemployed’s fault, the disabled’s fault, the kids’ fault, the weather’s fault, the LibDems’ fault, pasties’ fault, women filling up jerry-cans in a kitchen’s fault, Samantha Brick’s fault: anyone and everyone before it’s Gideon’s fault.

3. Luis Enrique

Here are some examples of The Economist cheerleading for austerity:

“Germany[s] … self-defeating obsession with austerity”
http://www.economist.com/node/21549963

” this strategy risks being self-defeating.” – in a November 2011 article called A very short history of the crisis
http://www.economist.com/node/21536871

” this collectively huge fiscal contraction is self-defeating” How to save the Euro
Sept 2011
http://www.economist.com/node/21529049

The Unkindest cuts (June 2010)
http://www.economist.com/node/16397086

http://www.economist.com/blogs/freeexchange/2010/06/austerity
“countries who can afford to continue boosting aggregate demand are instead withdrawing support ….a huge and costly miscalculation”

“austerity for every country with a big deficit ……may well prove to have been a big mistake.”
http://www.economist.com/blogs/freeexchange/2010/06/austerity_0

and that’s just what I got from 5 minutes searching and I bet I could find dozens more.

Sunny, words fail me. Disgraceful.

4. Bob B

“These orgs are intellectually boxed in. Their acceptance of neo-liberalism hamstrings any proper thought or economic insight.”

Try reading the Financial Times where editorials and the highly regarded economics columnists, like Martin Wolf and Sam Brittan, have persisted in criticising austerity focused fiscal policies. It’s simply untrue to claim “these orgs” subscribe to unqualified “neo-liberalism” – as though it’s unambiguously clear what the connotations of “neo-liberalism” are.

Try, for example, the FT editorial for 9 April: A growth agenda for the Eurozone:
http://www.ft.com/cms/s/0/66e05780-7f47-11e1-b3d4-00144feab49a.html#axzz1tWUz6wGz

Martin Wolf’s commentary on Osborne’s budget of 20 March: “A budget without economic significance”

Avowed leftists discredit their cause by making unchecked claims.

5. Luis Enrique

“Try reading the Financial Times”

or try actually reading The Economist

6. Bob B

Luis – that’s a fair enough chiding comment about The Economist although the FT is staple reading for boardrooms and in the civil service to an extent that The Economist isn’t. The FT also has excellent coverage of NHS policy switches, which is probably not some something non-readers of the FT would likely expect.

Strangely, there’s no sign that Cameron, Osborne and their associates read and absorb FT commentary. “Micawberism” is probably a better label for the government’s economic policy than neo-liberalism. After all, Keynes was a signed-up member of the Liberal Party and explicitly rejected “socialist” solutions. A few years back, a local admirer of all things Conservative actually quoted Micawber to me as signposting the way forward.

7. Tim Worstallt

“So the Economist admits austerity is killing Europe. After years of cheerleading for austerity, it has now silently u-turned.”

Luis has it above.

The point being that all us neoliberals (which the Economist generally is) make the distinction between having your own currency and not having your own currency.

Thus (and you don’t have to agree with this, I’m just explaining the distinction being made) austerity could be the right path for the UK but it absolutely is not for members of the eurozone.

For we can conduct monetary policy and they cannot.

8. Man on Clapham Omnibus

Any change to economic outlook will have to involve a change of Government. Like the train wreck that is the NHS, Dave Snooty and his Pals will continue the spiral downwards regardless.

9. Luis Enrique

Any discussion about what The Economist has or hasn’t been cheerleading or u-turning over needs to be based on what The Economist has actually written. This is what blows my mind about this post, why would anyone make claims about what a magazine has or hasn’t been writing, when they obviously have no idea what a magazine has or hasn’t been writing. I can only think Sunny has confused his prejudices for fact.

of course The Economist has more than one writer, who may disagree.

here is an argument that austerity may make more sense in the UK than it does in Europe, for reasons much like Tim W puts forward:

http://www.economist.com/blogs/buttonwood/2012/01/fiscal-policy

But here’s Ryan Avent, The Economist’s economics correspondent:

“British fiscal policy has not been ideal. Britain faced very little bond-market pressure and could easily have afforded to pursue a slower fiscal-consolidation route. It would have made (and would still make) more economic sense to devote the marginal budget dollar to improving the climate for lending to small businesses, or to investment in education and research, or to infrastructure spending rather than to deficit reduction.”

http://www.globalagenda.co.uk/blogs/freeexchange/2012/04/fiscal-policy

that’s recent but from what I’ve read from him I don’t think that’s an about-turn.

10. Bob B

In Tuesday’s FT, Gideon Rachman on: No alternative to austerity
http://www.ft.com/cms/s/0/7864786c-92aa-11e1-b6e2-00144feab49a.html#axzz1tcWuemCS

This runs counter to what his fellow columnists have been writing in the FT. The argument Rachman presents doesn’t show any basic understanding of what happens downstream to an economy when aggregate demand is cut back.

11. Bob B

Oh dear! This appointment, if it goes through, is anything but reassuring:

BRUSSELS – Eurogroup chief Jean-Claude Juncker has said he “fully supports” German finance minister Wolfgang Schauble to become his successor when his mandate runs out at the end of May.
http://euobserver.com/19/116091

Hopefully, François Hollande, if he is elected to the French presidency on Sunday, will block that appointment but if he does, what will that do to the Franco-German axis running the Eurozone?


Reactions: Twitter, blogs
  1. Mark McCormack

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  2. Buck Thomas

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  3. Martin

    http://t.co/yBSCYvch – so @economist it would actually improve your credibility if you openly admitted you were wrong about austerity?

  4. Riz Ahmed

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  6. Martin

    So @TheEconomist http://t.co/yBSCYvch – it would actually improve your credibility if you openly admitted you were wrong about austerity?

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  48. Austerity vs The One Penny Solution | HgTransEcon

    [...] S&P and Economist admit austerity not working (liberalconspiracy.org) [...]

  49. S&P and Economist admit austerity failing « jerrywaggon1

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