Today, George Osborne set out the most austere budget the country has seen in 30 years. Here’s hoping it was a sham—that the government is misleading the country and the world about the scale of the cuts it is about to implement. If he’s as smart as he thinks he is, Osborne will have decided on a course of dishonesty in the national interest.
The danger of a violent fiscal tightening has been well-flagged by the Labour party and by economists like David Blanchflower: by cutting too far, too fast, the government risks tipping the country into a second recession, one that will see long-term unemployment rise, causing lasting damage to our social fabric.
Maybe, say supporters of austerity, but look at the alternative. If we don’t administer our own medicine, the markets may take it upon themselves to do it for us, and the markets aren’t renowned for their sensitivity to social justice. The key thing is to send a signal to the world about Britain’s determination not to let its debt get out of control, as Greece did. Only then can we be sure of staving off collapse.
There’s a second argument for instant austerity: it might actually lead directly to economic growth. Those who think this absurd should take a look at the work of Alberto Alesina, an economist at Harvard who has conducted a comprehensive survey of the different approaches taken to debt reduction around the world in recent history. He found that “in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.” The reason seems to be that when consumers and businesses are confident in a government’s determination to reduce its debt, they grow more confident themselves. Like the first argument, this is about perception—about sending signals to trigger desirable real-world effects.
The fears of Blanchflower and others are well-founded. So is the fear of what happens if confidence in our fiscal position collapses. But, at its heart, this is a question of communication. We can address both concerns if we’re prepared, as a semiotician might say, to separate sign from referent.
The optimal strategy for our government, and for all European governments, is to manipulate perceptions while inflicting minimum real-world pain. Governments ought to pursue fake austerity programmes; to…