David Cameron’s “there is no alternative” speech last week on the UK economy has aroused much criticism. This is justified. The British prime minister’s arguments for sticking to the government’s programme of fiscal austerity were overwhelmingly wrong-headed.
It is easy to understand why he had to defend the government’s failing flagship policy. The incoming coalition embarked on a programme of austerity with the emergency Budget of June 2010. The economy, then showing signs of recovery, has since stagnated. Even the fiscal outcomes are poor. Indeed, according to the latest Green Budget from the authoritative Institute for Fiscal Studies, this fiscal year’s borrowing requirement may be bigger than last year’s. Only a productivity collapse saved the day – by keeping unemployment surprisingly low, ameliorating the social impact of the output disaster.
How does one defend this record? Simon Wren-Lewis of the University of Oxford and Jonathan Portes of the National Institute of Economic and Social Research, among others, have demolished the prime minister’s views. Here are the key points.