Opinion | Misguided belief in austerity diverts attention from need for jobs

Three years ago, a terrible thing happened to economic policy. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world's policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.

Worries about the deficit are greatly exaggerated - and I have documented the desperate efforts of the deficit scolds to keep fear alive. Today, however, I'd like to talk about a different kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity - the austerians - made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.

And let nobody accuse the austerians of lacking a sense of romance; in fact, they've spent years looking for Mr Goodpain.

The search began with a passionate fling between the austerians and Ireland, which turned to harsh spending cuts soon after its real estate bubble burst, and which for a while was held up as the ultimate exemplar of economic virtue. Ireland, said Jean-Claude Trichet of the European Central Bank, was the role model for Europe's debtor nations. American conservatives went further. Alan Reynolds, a senior fellow at the Cato Institute, declared that Ireland's policies showed the way forward for the United States, too.

Trichet's encomium was delivered in March 2010; at the time Ireland's unemployment rate was 13.3 per cent. Since then, every uptick in the Irish economy has been hailed as proof of recovery - but as of last month the unemployment rate was 14.6 per cent, only slightly down from the peak it reached early last year.

After Ireland came Britain, where the Tory-led government - to the sound of hosannas from many pundits - turned to austerity in mid-2010, influenced in part by its belief that Irish policies were a smashing success. Unlike Ireland, Britain had no particular need to adopt austerity: it is able to borrow at historically low interest rates. Nonetheless, the government insisted a harsh fiscal squeeze was needed to appease creditors and would boost the economy by inspiring confidence.

What actually happened was an economic stall. Before the move, Britain was recovering more or less in tandem with the US. Since then, the US economy has continued to grow, albeit slowly - but Britain's economy has been dead in the water.