Economics and Westminster politics have parted company. That's the message of this claim by James Bloodworth:
There is no longer a mainstream anti-austerity narrative. The Tories and the Lib Dems are making cuts, Labour are going to make cuts and no one who isn’t is going to get anywhere near power anytime soon.
There might not be an anti-austerity narrative in the narrow Overton window of Westminster politics, but there sure as hell is in mainstream economics. There's now widespread ageement, even at the IMF, that austerity did hurt the economy: Oxford professors and the Director of the NIESR might be marginalized by politics and the media, but they are mainstream in economics.
You might reply that this is mere history. Although we know that austerity has depressed output, isn't there a case for cuts now the economy is growing? Maybe, but not necessarily. There are three issues here:
1. Why should policy tighten, rather than merely allow the standard automatic stabilizers - the cyclicality of tax revenues - to work?
The Westminster answer is that some of the deficit is "structural" and won't be eliminated by growth; the OBR claims there was a cyclically-adjusted deficit of 4.3% of GDP last year.
However, this estimate is far from certain; it relies upon an attempt to quantify the extent to which GDP is below potential and such quantification is grossly unreliable. The Bank of England says there's "considerable uncertainty" about the size of the output gap, which must mean there's also considerable uncertainty about the size of the structural deficit.
2. If policy must tighten as the economy grows, why should fiscal policy do so more than monetary policy?
One could argue that monetary policy should adjust first for two reasons. One is that getting us away from the zero bound means that we'll be able to use monetary policy to cushion us when the next recession comes - which will relieve fiscal policy of the job. The other is that sustained low interest rates run the risk of igniting bubbles in asset prices, and it's an open question whether these are remediable by macro-prudential policies such as curbs on bank lending.
3. Can we be sure that the economy will continue to grow? It's quite possible that there'll be a recession at some time in the next parliament. It is therefore imprudent for a government to plan on tightening without considering this possibility.
I'll concede that I have maverick opinions on many things. But I suspect that, on these questions, I'm close to the mainstream. Granted, there might be a case for austerity, but it is far from as clear-cut as the Westminster village pretends.
The issue here, though, isn't merely about fiscal policy. It's about the extent to which politics should be informed by orthodox economic expertise. If anti-austerity arguments fall outside mainstream politics then it is not just the left that has been defeated, but rationality too.