Since the financial crash of a decade ago, there have been persistent controversies about both the most practical means of keeping western economies growing and the fairness of the policies enacted to fulfill that goal.
In the U.K.—and the EU generally—what has come to be called “austerity” was the dominant policy choice. Terrified by both the run on Northern Rock (the first run on a U.K. bank for 150 years) which had threatened to undermine confidence in the U.K.’s financial system and the example of Greece’s debt “doom-loop,” where it seemed the economic viability of a whole nation was called into question, the Conservative Party decided to make significant cuts to public spending (exact amounts are disputed) with the intention of reducing the deficit and protecting the U.K.’s creditworthiness.
As we approach the U.K.’s general election on December 12, 2019, the morality and effectiveness of the austerity policy is once again being intensely questioned. Was it ever the right thing to do?
Many economists felt at the time that, instead of chopping away at public services, it would have been better to engage in heavy Keynesian counter-cyclical investment in order to encourage the economy to grow its way out of trouble; but the counter-argument to counter-cyclicism was that government spending (contra Keynes’s original prescription) was already too high, that there had been too much government largesse during the boom years of New Labour for such a stimulus to be safe.
Nevertheless, it was thus the narrative we have lived with for a decade was established: the “few”, the banks and bankers—who caused the credit crunch in the first place—were bailed out by the taxpayer; while the “many”—everyone else—saw an underfunded public sphere descend into squalor.
There is plenty to dispute in the detail of this picture (consider, for example, how the Clinton administration’s push to extend home ownership in the U.S. teed up the global sub-prime mortgage debt crisis) but a sense that the remedy for the great recession was profoundly unfair has become commonplace.