The British economic recovery and Osborne’s austerity: Ferguson wrongly blames Keynes for Labour’s Loss

The Ft has published a piece by Harvard historian Niall Ferguson in which he makes the false claim that George Osborne, the British chancellor followed the correct policy in his austerity program because the British economy recovered. Labour should blame Keynes for their loss since Keynes didn’t work but anti-Keynesian policy did.I commented on this last night in the FT but they have since been inundated with comments mostly critical of Ferguson so allow me to reproduce my comment here so you can see what I have argued. (The Labour Party should blame Keynes for their election defeat FT May 11, 2015)

The comment ran more or less as follows. Niall Ferguson as usual is long on neo-con rhetoric and bombast but short on facts and grasp of economic history and theory. There has been plenty of analysis that which demonstrates that the UK recovery has been much slower than it would have been had the Government avoided austerity and resorted to Keynesian stimulus instead. See the work of both Gavin Davies in the FT and and Oxford university economist Simon Wren-Lewis writing in the February London review of Books, (vol.37 #4).

Wren-Lewis in his very insightful piece demonstrates beyond a shadow of a doubt that the initial Osborne austerity program did a lot of damage and slowed the British recovery. It was only after QE rescued Osborne that moderate growth was restored. But QE(quantitative easing) as I have explained before (see my paper Rediscovering Keynes and the Origins of Quantitative Easing posted on the site) is traceable back to Keynes and the Japanese Keynesian finance minister Takahashi Korekiyo in the early 1930s. As Keynes argued, in a slump one must push interest rates as low as possible à l’outrance and prevent them from rising. This is accomplished by having the central bank purchase government debt so that fiscal stimulus can be effective in restoring confidence, aggregate demand and growth.

What the British Tories got away with according to Wren-Lewis and economists like Stiglitz, Krugman and me, as well as others, is to falsely shift the blame for the crash and recession on to Labour when it is well known that the cause was excessive speculation in the financial sector and too much neo-con inspired deregulation. Osborne also escaped having to admit that it was moderating his policies in a more Keynesian direction that facilitated an improvement in conditions.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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