No doubt the conservatives want to declare vindication-they claim austerity didn't harm the economy, in fact maybe it helped it as the recovery went forward and rewarded Cameron with another term.
Actually, you can make the case the the reelection of the Tories is as much about a split vote among the voters who would normally vote for Labor from the Scottish Independent Party.
http://diaryofarepublicanhater.blogspot.com/2015/05/on-why-labor-lost-uk-election.html
Basically the Austerity coalition imploded-as the Liberal Democrats went from 23% of the vote to 8%; unfortunately Labour-who should have been the natural place for disillusioned LD voters-failed to pick up the 15% of the electorate that left the LDs who instead seemed largely to go SNP.
The share that went to both Labour and the Conservatives was basically stable.
Of course, this is the political dimension, there is also the economic dimension of what really happened to the UK economy and what factors brought this about. Even the amount of austerity done has been the subject of some debate.
Brad Delong's take:
"I just finished reading this piece by Brad DeLong: Optimal Control, Fiscal Austerity, and Monetary Policy. He begins in the following way:
"I find myself perseverating over the awful macroeconomic policy record of the Conservative-Liberal Democrat government of the past five years in Britain, and the unconvincing excuses of those who claim that the austerity policies it implemented were not a disaster–and that the austerity policies it ran on would not have come close to or actually broken the back of the economy."
http://andolfatto.blogspot.ca/2015/05/austerity-in-uk.html
There is a lot to say about the ways of economists-I can imagine an anthropological study that views them as a distinct species with distinct mores and customs-certainly they have their own distinct society where they are often at variance with the larger society. One type of economist I see a lot of are those who claim that they don't want to get involved in a political debate or that they aren't taking sides politically, just trying to have a 'scientific discussion.'
In my mind, it is to Delong's credit that he is not one of these-I notice that many Keynesians like him or Krugman don't affect to practice such abstinence.
However, I can think of many who want to lecture us on the purity of what they and other economists do-that they are totally above political concerns. Sumner takes this poise while clearly no one is more political than he is-MM is all about destroying the political will of using fiscal policy for anything but 'Supply Side reforms.'
Yes, Krugman is political too but he never denies this.
I don't want to go too far and claim that what economics does is nothing but politics. However, no matter how you want to spin it, what economists does has political implications. I mean, I got interested in economics for what it can tell us about policy not as an idle academic parlor game. I suppose that some academic economists want to think that economics is something on the line of pure mathematics-as if even pure mathematics has no political or social implications.
Here, David Andolfatto claims not to have an interest in either criticizing or defending actual Tory policy during the Austerity Years.
"Anyway, this post was meant more in the way of asking questions. In particular, I am not criticizing nor defending actual UK policy. I just want to know which textbook macro model (the model proposed by Krugman as all we need to know about macro) is consistent with DeLong's austerity story."
He's showing some skepticism about Delong's story but he's arguing in terms of theory: which theory confirms his story?
"Ah yes, there you have it. Austerity evidently killed GDP, but not the labor market. That's a very interesting hypothesis, but I'm wondering which textbook theory is consistent with it?"
"One story that makes sense is one in which austerity is somehow influences the productivity (or measured productivity) of workers. Classic Keynesian demand-stimulus measures are not typically thought to work through their effects on labor productivity (though, they could if government spending was in the form of infrastructure, for example.) The usual prediction is that an increase in G increases employment and reduces the average product of labor, where the effect on labor productivity is incidental (expansion of labor + diminishing returns to labor). "
"Interestingly, a neoclassical model with heterogeneous (high/low skill workers) could be consistent with these observations. Suppose that austerity takes the form of cuts to transfers (which may not have been the case). Then a standard wealth-effect motive induces workers to increase their labor supply (lower their reservation wages when searching for work), to make up for the loss in their after-tax wealth. To the extent that this wealth-effect is stronger for lower-skilled workers, the average quality of labor (measured labor productivity) declines. This is just a classic composition effect. I'm not suggesting that this is what happened. It's just interesting to note that it is theoretically possible from a neoclassical perspective and not so obvious from a Keynesian one."
It seems to me that Frances Coppola in her comment to Andolfatto does a pretty good job explaining Delong's story on theoretical grounds:
"UK labor supply has actually increased since 2008. This is due to two things:
"1) immigration"
Actually, you can make the case the the reelection of the Tories is as much about a split vote among the voters who would normally vote for Labor from the Scottish Independent Party.
http://diaryofarepublicanhater.blogspot.com/2015/05/on-why-labor-lost-uk-election.html
Basically the Austerity coalition imploded-as the Liberal Democrats went from 23% of the vote to 8%; unfortunately Labour-who should have been the natural place for disillusioned LD voters-failed to pick up the 15% of the electorate that left the LDs who instead seemed largely to go SNP.
The share that went to both Labour and the Conservatives was basically stable.
Of course, this is the political dimension, there is also the economic dimension of what really happened to the UK economy and what factors brought this about. Even the amount of austerity done has been the subject of some debate.
Brad Delong's take:
"I just finished reading this piece by Brad DeLong: Optimal Control, Fiscal Austerity, and Monetary Policy. He begins in the following way:
"I find myself perseverating over the awful macroeconomic policy record of the Conservative-Liberal Democrat government of the past five years in Britain, and the unconvincing excuses of those who claim that the austerity policies it implemented were not a disaster–and that the austerity policies it ran on would not have come close to or actually broken the back of the economy."
http://andolfatto.blogspot.ca/2015/05/austerity-in-uk.html
There is a lot to say about the ways of economists-I can imagine an anthropological study that views them as a distinct species with distinct mores and customs-certainly they have their own distinct society where they are often at variance with the larger society. One type of economist I see a lot of are those who claim that they don't want to get involved in a political debate or that they aren't taking sides politically, just trying to have a 'scientific discussion.'
In my mind, it is to Delong's credit that he is not one of these-I notice that many Keynesians like him or Krugman don't affect to practice such abstinence.
However, I can think of many who want to lecture us on the purity of what they and other economists do-that they are totally above political concerns. Sumner takes this poise while clearly no one is more political than he is-MM is all about destroying the political will of using fiscal policy for anything but 'Supply Side reforms.'
Yes, Krugman is political too but he never denies this.
I don't want to go too far and claim that what economics does is nothing but politics. However, no matter how you want to spin it, what economists does has political implications. I mean, I got interested in economics for what it can tell us about policy not as an idle academic parlor game. I suppose that some academic economists want to think that economics is something on the line of pure mathematics-as if even pure mathematics has no political or social implications.
Here, David Andolfatto claims not to have an interest in either criticizing or defending actual Tory policy during the Austerity Years.
"Anyway, this post was meant more in the way of asking questions. In particular, I am not criticizing nor defending actual UK policy. I just want to know which textbook macro model (the model proposed by Krugman as all we need to know about macro) is consistent with DeLong's austerity story."
He's showing some skepticism about Delong's story but he's arguing in terms of theory: which theory confirms his story?
"Ah yes, there you have it. Austerity evidently killed GDP, but not the labor market. That's a very interesting hypothesis, but I'm wondering which textbook theory is consistent with it?"
"One story that makes sense is one in which austerity is somehow influences the productivity (or measured productivity) of workers. Classic Keynesian demand-stimulus measures are not typically thought to work through their effects on labor productivity (though, they could if government spending was in the form of infrastructure, for example.) The usual prediction is that an increase in G increases employment and reduces the average product of labor, where the effect on labor productivity is incidental (expansion of labor + diminishing returns to labor). "
"Interestingly, a neoclassical model with heterogeneous (high/low skill workers) could be consistent with these observations. Suppose that austerity takes the form of cuts to transfers (which may not have been the case). Then a standard wealth-effect motive induces workers to increase their labor supply (lower their reservation wages when searching for work), to make up for the loss in their after-tax wealth. To the extent that this wealth-effect is stronger for lower-skilled workers, the average quality of labor (measured labor productivity) declines. This is just a classic composition effect. I'm not suggesting that this is what happened. It's just interesting to note that it is theoretically possible from a neoclassical perspective and not so obvious from a Keynesian one."
It seems to me that Frances Coppola in her comment to Andolfatto does a pretty good job explaining Delong's story on theoretical grounds:
"UK labor supply has actually increased since 2008. This is due to two things:
"1) immigration"
"2) rising participation rate, particularly among older people (55+), single mums and the sick & disabled. The last two are due to cuts in welfare entitlements, while older people staying on in employment (or returning to it) is due to rising pension age, particularly for women, and low interest rates."
"At the other end of the scale, the participation rate of the young is falling, as more of them choose to stay on in education. However, the young employed & unemployed have also suffered cuts in welfare entitlements, while young people in education have higher tuition fees and lower maintenance support funding so are increasingly likely to be working as well as studying."
"So overall, we have had an increase in the absolute size of the working population, an increase in the participation rate, a decrease in the dependency ratio (just about) and a reduction in labor quality."
"In the light of this,the UK's strong employment performance, declining productivity and falling real wages suggest substitution of labor for capital accompanied by hysteresis in the general population."
"So your neoclassical model with heterogeneous workers sounds about right to me."
"At the other end of the scale, the participation rate of the young is falling, as more of them choose to stay on in education. However, the young employed & unemployed have also suffered cuts in welfare entitlements, while young people in education have higher tuition fees and lower maintenance support funding so are increasingly likely to be working as well as studying."
"So overall, we have had an increase in the absolute size of the working population, an increase in the participation rate, a decrease in the dependency ratio (just about) and a reduction in labor quality."
"In the light of this,the UK's strong employment performance, declining productivity and falling real wages suggest substitution of labor for capital accompanied by hysteresis in the general population."
"So your neoclassical model with heterogeneous workers sounds about right to me."
If she is right then the increase in labor supply, the increase in the participation rate doesn't entirely bode well for the UK economy. Immigration is a positive thing for the economy-here is where you wish GOPers could learn from UK conservatives-but part of it is just cutting people off of welfare.
Of course, a Scott Sumner would view this an unambiguously positive thing-'You see, kick the moochers off of welfare and they go out and get themselves a job'-but from the standpoint of the larger social good is it a good thing that old folks past retirement age are compelled by need to have to go back into low paying jobs? Or that students are compelled to have to work while studying?
Conservatives love to hold up the French unemployment rate as a trump card which they presume is the effect of a generous welfare state but you could just as soon wonder if this isn't at least in part a social good if more people can afford what the Neoclassicals call 'leisure.'
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