Economics

Neville Chamberlain was Right

Jan 30, 2012 J. Bradford DeLong

Relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory. Unlike today's British leaders, he did not appease flawed economic theories.

BERKELEY – Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.

Compare that approach to the expansion-through-austerity policy being pursued nowadays by British Prime Minister David Cameron’s government (with Chancellor of the Exchequer George Osborne leading the cheering squad). The country’s real GDP has flat-lined, and the odds are high that British real GDP is headed down again.

Indeed, in less than a year, if current forecasts are correct, Britain’s Cameron-Osborne Depression will not merely be the worst depression in Britain since the Great Depression, but probably the worst depression in Britain…ever.

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J. Bradford DeLong

Writing for PS since 2002
245 Commentaries

J. Bradford DeLong, Professor of Economics at the University of California, Berkeley, is a research associate at the National Bureau of Economic Research and the author of Slouching Towards Utopia: An Economic History of the Twentieth Century (Basic Books, 2022). He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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Paul Ingram Jul 25, 2012

I am disappointed to see your understanding of Neville Chamberlain's effective policies through the lens of your own political leanings.

It's all very well using trendy modern trite meaningless phrases like 'expansionary austerity' when you haven't noticed that UK government spending is up not down. Let's not allow the facts to get in the way of a good story, eh?

Chamberlain cut public spending by 10%. It was a brave move which restored public confidence. He lowered taxes - firstly to those less well off. Those are the facts.

The problem in the UK is well understood by the public - it's the career politicians, academics, economists and in particular a peculiar class of unaccountable meddlers known as HM Treasury and the Bank Of England who keep telling us what we want.

We the public know that we need control of our own employment law, human rights law, fisheries & farming, immigration, less government, less regulation, lower taxes and a government that does not seem to delight in spending our money like water unwisely. Mr Laffer has shown us the way and recent drops in tax revenue and hysterical noises from HM treasury concerning the black market tell us that the government still doesn't get it.

Recent Union action tells us we have union problems where 10% of the workforce can humiliate the entire country.

So before you lecture anyone else with your slanted views please:-
read your subject matter thoroughly
avoid slanting your conclusions to support your political stance
run a successful business for say, Oh, twenty years dealing with the treasury, employees, unions and banks
do this whilst politicians do their level best to increase your burden, improve their haul and give away your sovereignty without asking you.

I am a great supporter of reading, but when the only book in town is Keynes I despair. Please find a new book to read which involves less burden, more encouragement. There is more to an economic downturn that fiscal stimulus (implying government borrowing). There is humanity - and we need hope that tomorrow will be better than today and our suffering will come to an end. We won't do that by increasing our debt.

Perhaps then I and others might listen.
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H Gerken Jun 4, 2012

Appeasement? Well, getting back to real very lately after the republic was destroyed by the financial conditions.
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Konrad Kerridge Apr 17, 2012

I believe that the concern over expansionary austerity is misplaced. Remember that the current generation of Tory leaders were brought up under Thatcherism. They may incidentally believe in 'balanced budgets' and 'good housekeeping' but they primarily believe in small government.....even if it takes a long time for the private sector to emerge into the space created by a decimated state. The decimated state is the primary objective. It is the fundamental structural reform that will set Britain on an entrepreneurial private sector led path to prosperity. This political objective is guiding the austerity policy, not the belief that austerity is expansionary. The issue they need to tackle is to get re-elected whilst decimating the state and before the prosperity comes about. That's why they have the continued dialogue and media discourse about 'austerity we need to have'.
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Peter Hollingsworth Jan 31, 2012

Independent of the falecy of the expansionary austerity idea it remains that all of the political parties, Conservative, Lib Dem and Labour plus the majority of the population subscribe to in one form or another. This isn't helped by the media which keeps reminding us that austerity is required. This is true even though by some estimates median real earnings may not return to there 2008 level until 2020.
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Procyon Mukherjee Jan 31, 2012

Yes, austerity theorists have been proven wrong, but the malaise is far more deep rooted in the British economy. The question is where should the incentives be headed that would spur growth, to the financial sector that would create further rise in capital exports of Great Britain or in the other productive sectors of the economy that would create a labor intensive supply of goods and services that is more home grown? The attention better be more directed towards those policies of the government that does not boost domestic demand or supply as productivity has deteriorated continually over the last decade that barring a few specialized sectors manufacturing and service is almost fully outsourced; minus austerity, the situation does not change if the direction of investments and policies is headed wrong.
Procyon Mukherjee
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Paul A. Myers Jan 30, 2012

Substantial investments in public infrastructure and human capital should have large payoffs in the coming years. Those countries that make these investments should therefore improve their competitiveness and comparative advantage.

There are two sources of funds from which to make these substantial investments: (1) domestic savings, or (2) borrowing.

Those countries with low borrowing costs, such as the US or the UK, (but low savings rates) should borrow and invest in their future competitiveness and growth. If they do not, they will emerge from the current recession with reduced prospects and prosperity.

The UK has fatefully chosen the wrong course. It remains to be seen where the American people come down on this fundamental question. The United States does have a huge strategic opportunity in front of it. Will anyone frame the question correctly in the current debate?
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