By Babak Moussavi
“When the facts change, I change my mind. What do you do, sir?”
In George Osborne’s case, the answer to John Maynard Keynes’ question above seems to be “I stick with it”. He appears not to have taken the great economist’s advice, and continues to pledge that austerity is the only solution to Britain’s economic malaise. Two years on, however, the Chancellor’s grand plan has failed and the UK is in a double-dip recession. The changing facts don’t seem to be as important for him as saving his face.
If he isn’t going to listen to Keynes’ witty and wise comment, though, will he listen to Paul Krugman, the Nobel Prize-winning Princeton economist?
On Newsnight on Wednesday, Professor Krugman, while touring the UK to deliver a number of speeches and interviews partly to promote his new book, was Jeremy Paxman’s guest throughout the show, with numerous other guests wheeled on to hold a debate with him. These included a former Greek finance minister, Giorgos Papakonstantinou (who comically – if understandably – took offence at the beginning with Paxman’s analogy that Greece might be “vomited out of the eurozone like a bad kebab”) and Harvard economist, Ken Rogoff, who suggested darkly that the only solution to Europe’s woes is the formation of a United States of Europe. Good luck with that one.
The show is certainly worth watching, and the purpose of this post is merely to ask you to do so (you can find it here – but it is probably up on the iPlayer for a limited time, so watch it soon, otherwise I’ll try to dig it up on YouTube). Professor Krugman, delivered an articulate and convincing master class in economic debate, displaying an encyclopaedic knowledge of his subject.
His best moment (from here) is when he was placed opposite two advocates of austerity: private equity boss John Moulton, and Conservative MP, Andrea Leadsom. It makes for cringe-worthy viewing. While Krugman is in possession of an abundance of facts, figures and studies, his opponents repeat slogans of how “the state is too large” and “we need to cut debt”, without ever addressing or assessing the arguments that he has put forward over why a Keynesian solution is the only way out of what he bluntly calls a depression. Mr Moulton suggests the state’s expenditure of nearly 50% of GDP is the problem and harks back to an era of when it was 30%. But when was that? Even Thatcher failed to get state spending below 40%, and growth has actually happened since she was around, so Mr Moulton has some explaining to do.
In any case, before pointing out that Sweden has a much larger state than the UK, and is weathering the economic storm well, Professor Krugman infers from these attacks that the debate over the merits of austerity is not being conducted in good faith, and he counters with a devastating line:
“You’ve just given me evidence for something people like me tend to say, which is that none of this is actually about fiscal responsibility, it’s about exploiting the situation to pursue an ideological goal of a smaller state”
When the facts change, some people don’t change their minds. And now we know why.