The costs of fiscal austerity, and of this wretched government’s incompetence, are vastly higher than even its critics appreciate.
I say this because of a new paper by Markus Brueckner and Hans Peter Gruener which shows that “lower growth rates are associated with a significant increase in right-wing extremism.” This corroborates a point made by Ben Friedman back in 2005:
The history of each of the large Western democracies – America, Britain, France and Germany – is replete with instances in which [a] turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation that diminished people’s confidence in a better future. (The Moral Consequences of Economic Growth, p8-9)
And let’s be clear. Stagnation is just what millions of people have suffered. The Resolution Foundation reports that over half of working age households have seen flat or falling living standards since 2002. This created a discontent with the establishment that manifested itself in support for Brexit. As Torsten Bell points out, there's a strong correlation between wage levels and the tendency to support Brexit, which suggests that if the economy had done better and wages (especially those of the worse off) were higher, there'd be less support for Brexit. Basic behavioural economics – prospect theory – tells us that people who feel they’ve lost will be tempted to take reckless gambles.
Of course, austerity isn’t the sole cause of low incomes: even a decent government would have struggled against the post-crisis stagnation in productivity and growth. But austerity undoubtedly exacerbated the problem.
And of course, support for Brexit, in itself, is not right-wing extremism. But as Aditya Chakrabortty says, the campaign helped to generate racism. Discontent with stagnant real wages and poor public services – both the result of austerity – led to a demand for Brexit which itself fuelled a surge in racism. The cost of austerity isn’t just lost GDP. It’s is increased intolerance too. There’s a direct link from Osborne’s criminal economic mismanagement to hate crimes.
You might think I'm going too far here. I'm not. In fact, this is basic economics. Econ 101 says that people respond to incentives. And the incentive to express racist opinions rather than keep them bottled up has increased recently because when politicians express neo-racist ideas, people believe that the stigma attached to being racist has declined. In this sense, the cost of being a low-level racist has fallen - and a fall in costs generates increased supply.
Granted, Cameron and Osborne sincerely deplore such attacks. But that misses the point – that if you dump a pile of shit on your doorstep, you can’t disown the flies.
It’s not surprising that this link is under-appreciated. For one thing, people are lousy at making connections in the social sciences. For another, deference, ideology and tribalism mean that even the worst politicians retain support; a quarter of Americans thought Richard Nixon was doing a good job as US president even at the peak of the Watergate scandal. These forces are, of course, reinforced by our terrible media. On the Today programme Nick Robinson asked Osborne whether the government was right to call a referendum. But he didn’t ask whether austerity and stagnation had increased support for Brexit – perhaps because mediamacro ideology blinds the BBC to such possibilities.
But let’s be clear. Osborne and Cameron haven’t merely wrecked Britain’s reputation in the world, cost us billions of pounds in lower real incomes and driven people to despair and suicide. They have now created a climate in which migrants and ethnic minorities no longer feel safe. Has there ever in our history been a more abject, incompetent, stupid, reckless, contemptible government than this?