The Reckoning

Austerity for Posterity

One of the most frustrating things about the otherwise uplifting experience of publishing my first book is the lag time between the submission of the manuscript and publication. Roughly speaking, five months will have elapsed since I turned my manuscript in—and with some exceptions during the copy editing and pagination process—I have really not been able to adjust for fast changing realities.

So far, I feel sanguine about that: My analysis is holding true, both in terms of the U.S. economy’s challenges, the blinders worn by our political elites when they present their views of America’s longer-term prospects, and even the unpredictable Arab Spring. (I may be tempting fate, of course: The book’s not out until April 10.)

But this week, Paul Krugman wrote a column that so neatly encapsulates something in my book that I might as well get it out there—if only so, once the book appears in print, it won’t seem like plagiarism. In his column Monday, Krugman pointed out that those who advocate radical austerity right now for the U.S. economy need only look at Britain for an example of how that might play out. In this, I believe he is absolutely correct: The mania for cutting public spending, both in Britain and the Eurozone, “represents a stunning failure of policy.”

While Bloomberg accused Krugman in a rather pissy editorial Wednesday of telling half-truths, in fact, the credit crunch and malaise in the U.K. today was predicted back in 2010 by another economist who doesn’t get a shout out from Krugman: David Blanchflower.

And here we pick up the story, as I wrote so many months ago, and which will eventually be published under my name a few months hence:

The current British economy offers a living, bleeding case study of that very result.  Subjected to austerity policies by the Conservative Party government of Prime Minister David Cameron starting in late 2010, Britain’s economic recovery promptly stalled and dove toward “double dip” recession. David Blanchflower, arguably the world’s leading labor economist, had warned the UK government’s top economic policy official, Chancellor of the Exchequer David Osborne, that deep austerity on the heels of a deep recession was a historic policy mistake that could permanently lower the “speed limit” of British GDP growth. By the middle of the next summer, the nightmare was unfolding. “Osborne’s policies will be responsible for the worst recession in a century—and maybe it should be named the “Second Great Depression,” he wrote in July when statistics showed Britain’s once robust growth was on tract to lag even the pace of recovery from 1930-1934.

In the United States, the lesson has failed to take. With the silly season of primaries looming, when rational thought takes a back seat to appeasing zealots, the GOP appears unwilling to address the British debacle. Instead, an intellectually dishonest ditty from the Grand Old Hymnal, “What Would Reagan Do?” wafts up from the party’s rank-and-file. Whether the 1980/2012 comparison is relevant or not (the case is dubious at best), contemporary Republicans seem unable to grasp what Reagan actually did do. So thick is the propaganda around “The Gipper” that no one recalls how, faced with a difficult economy and divided government himself in the 1980s, Reagan chose to mix tax cuts with stimulus spending and, yes, tax increases, too. Bruce Bartlett, an economic advisor to Reagan and a Treasury official under George H.W. Bush, professes amazement at the twisting of the historical record by those who allegedly idolize his former boss. Bartlett reminds us, “the cumulative legislated tax increase during his administration came to $132.7 billion as of 1988 ($367 billion today). This compared to a gross tax cut of $275.1 billion. Thus Reagan took back about half the 1981 tax cut with subsequent tax increases.”

Think about it, America: You “let Reagan be Reagan”; the least you could do is let our next president, whether its Obama or Romney, be a Gipper, too.

Michael Moran is Director and Editor-Chief of Renaissance Insight, a new division of the global investment bank Renaissance Capital. Follow him on Twitter, subscribe to his Facebook feed, or preorder his book, “The Reckoning: Debt, Democracy and the Future of American Power,” coming in April from Palgrave Macmillan.