Much Ado About Nothing

The new UK chancellor of the exchequer, George Osborne, last week announced the widely expected 'austerity' budget that has the usual suspects like Paul Krugman in a tizzy.

As Osborne remarked in defending the spending cuts, “the alternative to the sweeping cuts would be economic ruin.” That brings the issue to its essential point – you can not keep spending other people's money until there's nothing left, no matter how often socialists assert that this is not only possible but actually 'necessary' to combat an economic slump.


Fulminates an apoplectic Krugman:


“Fiscal austerity will depress the economy further unless it can be offset by a fall in interest rates. Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation’s fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax.

But trendy fashion, almost by definition, isn’t sensible — and the British government seems determined to ignore the lessons of history.

Both the new British budget announced on Wednesday and the rhetoric that accompanied the announcement might have come straight from the desk of Andrew Mellon, the Treasury secretary who told President Herbert Hoover to fight the Depression by liquidating the farmers, liquidating the workers, and driving down wages. Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis.

The British government’s plan is bold, say the pundits — and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers — the equivalent of almost three million layoffs in the United States — at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.”


As usual, Krugman has just about everything the wrong way around, including the so-called 'history lessons'. While he is correct that Mellon advocated a laissez-faire approach to the Great Depression, he neglects to mention that Hoover refused to follow Mellon's advice. Instead Hoover's massive intervention promptly laid the foundation for a long-lasting depression – precisely because he did not allow wage rates to adjust and malinvestments to be liquidated. He also was a huge deficit spender, an inconvenient fact Krugman has deliberately kept from his readers on many occasions.

As to the 'boldness' of the UK budget – it is anything but 'bold'. It is not even really appropriate to call this timid exercise an 'austerity plan'. More on this further below. Meanwhile, the assertion that the 'private sector is not ready to take up the slack' allegedly produced by almost 500,000 unproductive jobs in the bureaucracy vanishing, completely ignores the 'unseen' but decisive effect this budget will exert on business confidence.

Manpower CEO Jeff Joerres evidently has a far better grasp of this than Krugman, when he says:


“Britain's economic growth may moderate as a result of the measures, but their benefits will quickly become apparent, Manpower CEO Jeff Joerres said.

"You're creating jobs in a different way by being able to create certainty for companies that they're not going to continue to be taxed to pay for public programs," Joerres said in an interview.”


This, as it were is the 'unseen' but nonetheless very real effect we can expect to become evident as time passes. We strongly suspect that Krugman's biggest fear is that the UK might actually succeed. He has already built himself an 'out' in the same opinion piece:

“What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy.”

That's how easy it is – Krugman never has to prove anything – if the UK economy improves, then it was just pure luck ('something' will then havew 'come along'). If it doesn't, then 'austerity' is to blame.

Here it is important to remember that economic growth as nowadays defined by the GDP measure is essentially a meaningless concept. Consider that even government spending is added to GDP, while the entire spending of the productive sector (all intermediate and early stages of production preceding final products) is simply ignored. So even though the UK's 'GDP growth' may indeed moderate somewhat as a result of less government spending, there will in all likelihood nonetheless be more actual wealth creation than if the willy-nilly spending had just continued as before.

What Austerity, Really?

Alas, how much 'austerity' is there really in this budget? As it turns out, not all that much. In 'The Cuts: A Crisis Wasted', an unsigned WSJ editorial, we learn that:


“The blueprint for the British government's long-awaited spending cuts is in at last. Just how savage is it? Between now and 2015, Her Majesty's government proposes to raise spending by £43 billion. What has been touted as the most draconian exercise in government downsizing that the West has seen in a generation turns out to be anything but.

Granted, when adjusted for inflation the plan does cut spending by an estimated 3.6% over the next five years. That would bring public spending to about 40% of GDP, from the current near-50% that it is today. That level was last seen in 2008, just prior to the financial crisis. Readers not yet suffering from short-term memory loss may recall that in May of that year, then-opposition leader David Cameron gave a speech indicating he was dissatisfied with that norm. "Simplistic lists of cuts," he said, would not bring Britain's finances into line. Instead, he argued, "we need to think far more deeply about the role of the state."

By the time Mr. Cameron took office this May, Britain's deficit had swollen to more than 11% of GDP from roughly 3% two years earlier. It seemed possible that the fiscal crisis would give Mr. Cameron and his Chancellor George Osborne an opportunity to translate that re-think into what many have promised but few have achieved: a smaller government.

Yesterday that opportunity faded.”


Color us unsurprised. As far as we know there is not a single political party in Europe, including the UK , that is actually serious about diminishing the role of the State in the economy and society. Similar to Ronald Reagan, there may be some politicians paying occasional lip service to the concept, but in the end leviathan just keeps growing anyway.

So Krugman is seriously contending that an increase in UK government spending of £43 billion over the next 5 years amounts to economy-strangling 'austerity'?

Krugman is also quite wrong when he asserts that the Tories used the opportunity to force their alleged 'anti-state' ideology down everyone's throat (although voters generally would seem to be fine with the idea).

Krugman says:


“Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state.”


If only it were true. As the WSJ editorial notes in this context:


“If Messrs. Cameron and Osborne stick to their plan, and if Britain's economy continues to recover, they may succeed in slashing the budget deficit to 1.1% of GDP by 2016. That would be an accomplishment. But what's missing from their blueprint is any commitment to the new philosophy Mr. Cameron once promised. Wednesday's review, despite its many line-item reductions, does little to advance the cause of rethinking the role of the state, to say nothing of reducing it.

In some areas, the government will be inserting itself further into the affairs of its citizens under the new spending plans. For instance, Mr. Osborne yesterday announced £1 billion for a "green investment bank," the better for the government to do what it keeps calling on private financiers to do. It will also spend up to £1 billion to create a "commercial scale carbon capture and storage demonstration project," though the very term "commercial scale" prompts the question of why commercial organizations aren't funding it themselves. The same goes for the government's more than £200 million for wind-power generation and other "green" investments.


This strikes us as rather concerning. There are more and more reasons to suspect that the 'global warming' hysteria is possibly the scientific hoax of the 20th century – see in this context the recent resignation of professor Hal Lewis from the American Physical Society as yet another sign that the so-called 'scientific consensus' on the issue is crumbling, and see also the invaluable site of meteorologist Anthony Watts on the 'Climategate' scandal that Lewis references in his resignation letter. There is also every reason to suspect that under the cover of an imaginary emergency, more and more coercive statist measures are introduced at a great cost to the economy and individual liberty.

The Ecofascists

As former Greenpeace member and co-founder of the movement, Patrick Moore notes (we recommend reading the entire piece):


“Two profound events triggered the split between those advocating a pragmatic or "liberal" approach to ecology and the new "zero-tolerance" attitude of the extremists. The first event, mentioned previously, was the widespread adoption of the environmental agenda by the mainstream of business and government. This left environmentalists with the choice of either being drawn into collaboration with their former "enemies" or of taking ever more extreme positions. Many environmentalists chose the latter route. They rejected the concept of "sustainable development" and took a strong "anti-development" stance.

Surprisingly enough the second event that caused the environmental movement to veer to the left was the fall of the Berlin Wall. Suddenly the international peace movement had a lot less to do. Pro-Soviet groups in the West were discredited. Many of their members moved into the environmental movement bringing with them their eco-Marxism and pro-Sandinista sentiments.

These factors have contributed to a new variant of the environmental movement that is so extreme that many people, including myself, believe its agenda is a greater threat to the global environment than that posed by mainstream society.”

We would add to that that few things have proven more conducive to introducing new taxes and increasing the role of government in people's lives than specifically the global warming scare. As Hal Lewis correctly states in his letter of resignation – literally tens of billions of tax-cow money are at stake every year. If the scientists at the forefront of the scaremongering were to admit that climate change is a natural phenomenon on our planet, they would lose out on a veritable mountain of grants. The money would likely go to other branches of science, and climate science, which used to be a relatively obscure branch, would fall right back into obscurity. As an aside here, if you wonder why it is now called 'climate change' (absurd as that is – earth's climate has always changed, and will always change – you might as well complain about the sun rising every morning) instead of 'global warming', that is mainly because the climate has experienced a cooling trend since 1998. Oops!

While this article is not the place to go into this topic in more detail, here is one very good reason to be wary of apocalyptic 'scientific consensus' forecasts. The consensus in the mid 1970's was that the earth's climate had embarked on a dangerous cooling trend and that something had to be done right away, else we would be doomed. Here is a Newsweek article from 1975 setting forth what was then the 'consensus of climate doom'. Imagine if politicians had blindly followed the recommendations made back then (among which we find inter alia 'covering the ice on the poles with soot, so it would no longer reflect so much sunlight').

Confirming Mr. Moore's views, the environmental movement occasionally lets the mask slip and gives us the odd look at its authoritarianism. Here is a tax-payer financed video entitled 'No Pressure' referencing the UK carbon emissions reduction campaign:





That should give everyone pause, because in its misguided attempt to strike a 'funny' note, it actually reveals an 'inconvenient truth' about the movement's authoritarian ideological bent. We believe that 'green energy' or 'alternative energy' more generally, do not require government help – that is a waste of scarce resources that would be better employed elsewhere. Any large scale problems facing humanity can be best countered by economic and technological progress – which in turn is best ensured by letting the free market operate unhindered.

The new UK government – a paragon of 'small government and fiscal austerity'? Only when compared to even more profligate governments elsewhere, but certainly not on its own merits.

Krugman really doesn't have all that much reason to worry – unfortunately.



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