How the financial media made austerity worse

The UK financial press was much slower to criticise the austerity policies of the government than in other parts of Europe. This meant that it became accepted as the only way to tackle the legacy of the global financial crisis of 2007-08, despite many economists arguing it would further damage the economy.

This is the central finding of research published in a new book, The Media and Austerity, which I co-edited with colleagues Sophie Knowles and Laura Basu. The lack of a broader discussion of alternatives to austerity meant that there was little public debate on other policies which might have had a less severe effect on public services.

Austerity was introduced in the UK after the 2010 election by the coalition government. The government argued that cutting public spending to reduce the large public sector deficit was the only way to restore the economy to health. The deficits were caused by the sharp increase in government borrowing to bail out the banks, and by the decline in tax revenues due to the recession caused by the crisis.

Meanwhile, many economists argued that cutting public spending during a recession would be bad for the economy. It was an argument that grew stronger as the promised recovery failed to materialise after a brief uplift in 2013. And the weak economy meant that the public sector deficit remained stubbornly high.

The scale of the public sector cuts put a severe strain on public services such as health and education, and reduced help for the poor. But little of this argument was played out in the press as a whole.

Patterns of coverage

Looking at the pattern of press coverage by key commentators from the beginning of the crisis, it is clear that a new consensus on austerity had already emerged in the run up to the 2010 election, when the credibility of the Labour government at the time was challenged by the economic slowdown.

This consensus view changed little over the next five years, despite the failure of the policy to prevent the biggest global slowdown since the 1930s – let alone deliver the promised benefits of economic recovery and prosperity.

One factor was the inability of the political opposition to articulate a clear alternative, which made it difficult for the press to put one forward. But the press was also guilty of a collective amnesia. It quickly forgot the lessons of the global financial crisis itself, which demonstrated that the conventional economic wisdom was based on weak foundations.

In that pre-crisis view, markets would always correct themselves and the government should reduce regulation to boost the economy. What was striking was how little the press challenged the new orthodoxy of austerity.

This failure was all the more notable, given that the press was widely criticised – notably by the Treasury select committee – during the financial crisis for its lack of historical perspective that might have informed its coverage. It should have been more sceptical of claims that we had entered a new era of crisis-free stability.

The book also critiques the press' relationship with the economics profession. Economist Simon Wren-Lewis points out that the television media especially, lacked the knowledge to evaluate economic arguments and rarely cited the more sceptical views of academic economists in evaluating austerity.

Instead, the press, when they consulted economists at all, quoted City economists for comment on short-term news events, rather than seeking out a deeper understanding of government policy. Had they done so, the limits of austerity might have emerged earlier and better debate might have ensued.

There was also a disconnect between the media coverage and the experience of ordinary people. Focus group research revealed that there were many concerns about the effects of austerity on ordinary households, including on jobs and public services, but this was not widely reported. This made it more difficult for the public to articulate concerns and feel part of the debate.

History repeated

One of the most telling examples of how the role of the press might have been different was an analysis of the UK's first austerity programme, the 1922 "Geddes Axe". This was a plan to slash all government spending by 10% to deal with the legacy of the huge debt accumulated during World War I. In a detailed study of press coverage, the financial historian Richard Roberts shows that the press played a key role in promoting this, even backing independent political candidates who ran on an austerity ticket.

But after the policy was adopted, the press also played a key role in blunting the severity of the cuts, fuelled by strategic leaks by ministers who objected to their departmental budgets being slashed. In this more patriotic era, it was the resistance of the British Navy to cutting back the fleet that carried the day.

Our conclusion is that the media failed to play its proper role of serving as a forum for public debate on the central economic policy of the last decade. The history of the last few decades of economic policy suggests that when the press fails to play its watchdog role, entrenched views and group-think can persist for a long time. This limits the space for credible alternatives to emerge and, in turn, the ability of policymakers to respond.

Steve Schifferes is Professor of Financial Journalism, City, University of London