For today’s Halloween newsletter, a terrifying tale of neoliberalism from the distant past (the 2010s). Unlike my usual newsletter posts, this one has footnotes— not a new habit but a virtue of how I drafted this.

The 2008 financial crisis was global– America was the world’s largest economy, and the center of global finance, while the dollar was the world’s reserve currency. In 2010, the Conservative Party returned to government in Britain for the first time since 1997– and immediately had to face the recession. There were a variety of ways they could have addressed this: an increase in taxes, or accepting higher inflation. The once-traditional Keynesian approach would encourage increased spending to boost flagging demand. But the Tories were the party of asset holders, not wage-earners. Wealthy backers did not want to see their tax bill go up. Older homeowners did not want inflation eating away.

Instead, Chancellor George Osborne and Prime Minister David Cameron pushed what came to be known as “austerity”: harsh budget cuts to fix the deficit. Here and everywhere else that it was pursued, austerity relied on moralizing rhetoric and denunciations of “Big Government.” As David Cameron had put it in an October 2009 speech, outlining planned policies at his party’s national conference, the economy, society, and politics were “broken” “because government got too big, spent too much, and doubled the national debt,” “got too big, did too much, and undermined responsibility,” “got too big, promised too much and pretended it had all the answers.” The answer was “rebuilding responsibility” through massive spending cuts.^[1] Osborne promised these would “restore confidence” and thus increase investment in Britain.^[2]

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The economic theory behind this was questionable at best. A reduction in state investment would cause pain for local governments and British citizens in the short term, and harm growth in the long term. Economist Paul Krugman joked that austerity’s advocates were appeasing a “confidence fairy,” asking in his New York Times column, “What’s the evidence for the belief that fiscal contraction is actually expansionary, because it improves confidence?” There was no evidence. Austerity was a policy directly drawn from the rationalist neoclassical economic tradition, not the empiricist tendencies it rejected. Politically, support for austerity came from the deflationary coalition.