Posted at 12:12 pm on 24 May 10 by Adam Lent
Lovely presentations of data on the UK public finances since the war by The Guardian here. Scroll down to the table near the bottom and you notice something interesting: the period between 1946 and 1979, when the post-war social democratic consensus reined, saw only five years when the public finances were in deficit. However, since 1979 there have only been seven years when the public finances weren’t in deficit.
Unlike orthodox neo-classical economists, I prefer empirical evidence and history to theoretical models and I think that counts as a pretty strong data set. It suggests two things:
- firstly, the Thatcherite consensus has been far worse than the social democratic consensus at generating a sound fiscal position (pretty poor show given this was the Iron Lady’s big schtick in 1979);
- secondly, that the current European and UK obsession with New Right style austerity cuts will not deliver the long term fiscal stability the politicians claim.
The reason for both is the same – fiscal health is delivered by economic health not vice versa. The period after the war was characterised by economic stability and growth with only one minor recession. Since Mrs. Thatcher reshaped the UK economy we have suffered three recessions and a series of collapses in the financial sector. There is little chance of sound public finances when they are repeatedly buffeted by the volatility of a free market. But humanity’s (and economists’) capacity to ignore history is sadly infinite.