The Economic Consequences of Mr. Osborne

CAMBRIDGE – “If the facts change,” John Maynard Keynes is supposed to have said, “I change my opinion. What do you do, sir?” It is a question his latter-day disciples should be asking themselves now.

Long before the United Kingdom’s recent general election, which the Conservatives won by a margin that stunned their critics, the facts about the country’s economic performance had indeed changed. Yet there is no sign of today’s Keynesians changing their minds.

Because I admire him as an historian, not least for his Keynes biography, I omitted Lord Robert Skidelsky’s name from my post-election commentary critiquing the contemporary Keynesian take on the UK economy. Opprobrium was best heaped, I believed, on Paul Krugman, as he makes such a virtue of heaping it on others. Unwisely, Skidelsky has leapt to Krugman’s defense.

Let me restate why the Keynesians were wrong. In the wake of the 2010 British election, Skidelsky, like Krugman, predicted that Chancellor of the Exchequer George Osborne was gravely wrong in seeking to reduce the budget deficit. In November 2010, he described Osborne as “a menace to the future of the economy” whose policies “doomed [the UK] to years of interminable recession.” In July 2011, he told the Financial Times that Osborne was “making a wasteland,” warning that financial markets might soon lose confidence in his policies.