One of George Osborne’s great if inadvertent achievements – aided by a complicit media – has been to escape sufficient censure for the consequences of austerity. Few people blamed his cuts for the winter floods, just as savers aren’t blaming him for low interest rates. It’s as if austerity is a mere statistical artefact, rather than something which damages real lives.
So it is with the steel crisis. It is insufficiently remarked that if we had sensible macroeconomic policy – not just in the UK but across Europe – then steel demand would be higher and the crisis less acute.
This isn’t to say there’d be no problem. Even a 10% rise in EU demand for steel would represent (pdf) only 1% of total global output, and the industry of course faces long-term difficulties. But higher demand for steel would at least mitigate the crisis, buy time for the industry to effect a more orderly adjustment, and give displaced steelworkers a greater chance of finding alternative employment.
Yet again, though, macroeconomic policy isn’t getting sufficient blame.
This raises a paradox – that it is supporters of free markets who should be most opposed to irrationally restrictive macroeconomic policy. This is because – as we’re seeing with demands for steel tariffs and other forms of state aid - austerity increases hostility to the free market.
It’s not just in the steel crisis that this is the case. In worsening the wages and job prospects of the worst off – not just in the UK but across Europe – , austerity increases support for minimum wages and immigration controls. As Ben Friedman says “economic growth brings about the advance of freedom”; stagnation and austerity tend to have the opposite effect.
Free marketeers should therefore be saying: “austerity is a menace because it is increasing support for anti-market policies.” I haven’t, however, been deafened by such calls.
Many readers will reply that higher aggregate demand is not a cure-all. I sympathize. But this is because I too am sceptical of the efficacy of the free market. Free marketeers, though, should be more optimistic. It is entirely possible to argue that the free market works in allocating jobs, but fails in determining the level of employment. In fact, this was Keynes’ position:
When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.
Opposition to austerity combined with support for free markets is therefore not only a reasonable position, but also one with a decent intellectual pedigree. Which makes it all the more mysterious that it is so rarely heard. I suspect, though, that this mystery is best left unexamined.