Daily Bulletin


The Conversation

  • Written by The Conversation
imageToo much of a squeeze?keenteegardin/flickr, CC BY-SA

In the last five years, austerity has undermined our public services, lowered the living standards of working people, pushed more children into poverty and held back economic growth.

Nicola Sturgeon, Scottish first minister and Scottish National Party leader at the party’s manifesto launch.

It is easiest to start at the end. Conventional macroeconomics would agree that fiscal austerity and cuts to government spending did hold back growth. The Office for Budget Responsibility estimate that austerity reduced growth by 1% in each of the financial years 2010-11 and 2011-12. In the graph below, the orange bars show the impacts on growth of austerity expected in 2010 and the blue bar how they have changed. Others have higher estimates.

imageImplied impacts of discretionary fiscal policy on GDP growthOBR

The key point here is that because short-term interest rates had fallen as far as the Monetary Policy Committee of the Bank of England thought they could go (0.5%), monetary policy was not able to offset the impact of fiscal contraction – cuts to government spending, or austerity. Instead, monetary policy had to resort to Quantitative Easing: creating money to buy long term assets in order to put downward pressure on long term interest rates. Quantitative Easing probably had some effect on the growth rate, but almost certainly not enough to counter the impact of fiscal austerity.

Lower growth caused by fiscal austerity would normally mean one of two things: higher unemployment or lower living standards. An unusual feature of the past five years is how quickly unemployment has fallen, even though GDP growth has not been strong. As a result, the main impact of lower growth – including that caused by fiscal austerity – has been on living standards. imageStanding tall against austerity.Danny Lawson/PA Wire

Fiscal austerity has involved reduced public spending in many areas, including welfare payments. The general consensus among economists such as those at the Institute for Fiscal Studies is that fiscal consolidation has hit two groups more than most: the rich and the poor. It is therefore reasonable to say austerity in itself has increased child poverty. As living standards have fallen generally, then relative levels of poverty in general – which measure the poverty gap – have not increased over the last few years, although absolute levels of poverty have. However, Sturgeon is careful in her statement to talk about the impact of fiscal austerity.

The assertion that fiscal austerity has “undermined our public services” comes close to being a tautology. To suggest otherwise you would have to argue that spending less on public services has only increased the efficiency with which they were delivered.

Verdict

Nicola Sturgeon’s statement on the economic impact of austerity on the UK is correct, with no qualifications.

Review

I don’t have any major disagreements with the author’s analysis. There are two particular provisos that may be worth raising. The first is that the stagnation in standards of living under the coalition period (and from before that) partly reflects the UK’s very poor productivity performance at this time. It could be argued that this largely reflects austerity: had demand been higher, companies would have been able to sell more which would probably have resulted in higher productivity. For example, if a factory is idle, workers are under-employed or not able to get jobs in relatively high productivity sectors because of lack of demand. Alternatively the author may simply be arguing the austerity isn’t the only problem here, but it is one problem and so Sturgeon is correct.

Second, Sturgeon’s comment about child poverty might be worthy of some specific reference to what has happened to it. It is not my particular area of expertise, but the previous decline in child poverty appears to have been reversed around 2011, although has remained flat since, and this may be worth noting.

The Conversation is fact checking political statements in the lead-up to the May UK general election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.Click here to request a check. Please include the statement you would like us to check, the date it was made, and a link if possible. You can also email factcheck@theconversation.com

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.

Authors: The Conversation

Read more http://theconversation.com/fact-check-has-austerity-held-back-economic-growth-40578

Writers Wanted

COVID has left Australia's biomedical research sector gasping for air

arrow_forward

How Australian vice-chancellors' pay came to average $1 million and why it's a problem

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Ben Fordham, 2GB

BEN FORDHAM: Scott Morrison, good morning to you.    PRIME MINISTER: Good morning, Ben. How are you?    FORDHAM: Good. How many days have you got to go?   PRIME MINISTER: I've got another we...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Business News

Nisbets’ Collab with The Lobby is Showing the Sexy Side of Hospitality Supply

Hospitality supply services might not immediately make you think ‘sexy’. But when a barkeep in a moodily lit bar holds up the perfectly formed juniper gin balloon or catches the light in the edg...

The Atticism - avatar The Atticism

Buy Instagram Followers And Likes Now

Do you like to buy followers on Instagram? Just give a simple Google search on the internet, and there will be an abounding of seeking outcomes full of businesses offering such services. But, th...

News Co - avatar News Co

Cybersecurity data means nothing to business leaders without context

Top business leaders are starting to realise the widespread impact a cyberattack can have on a business. Unfortunately, according to a study by Forrester Consulting commissioned by Tenable, some...

Scott McKinnel, ANZ Country Manager, Tenable - avatar Scott McKinnel, ANZ Country Manager, Tenable



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion