Is austerity counter-productive even in microeconomic terms? I ask because the ransomware attack on the NHS seems to have been dues at least in part to a lack of spending on IT. The Register says:

The NHS is thought to have been particularly hard hit because of the antiquated nature of its IT infrastructure. A large part of the organization's systems are still using Windows XP, which is no longer supported by Microsoft, and Health Secretary Jeremy Hunt cancelled a pricey support package in 2015 as a cost-saving measure.

That “cost saving” might well turn out to have been no such thing. It’s possible that the cost of repairing the attack, cancelled operations and updating IT systems will offset the initial saving.

This is by no means an isolated example. Cutting prison staff looks like a “saving”, until prisoners either riot or re-offend upon release because of a lack of rehabilitation. “Savings” on flood defences become no such thing when we need to repair the damage done by flooding. Low spending on social care adds to NHS costs by keeping people in hospital. Cuts in psychiatric care add to police spending. A lack of spending on schools isn’t a saving if parents pay a hidden tax by donating money to schools. And so on.

In ways like these, austerity is counter-productive. It either means shifting the burden onto other public services, or increased spending later to pay for the damage done by cuts.

This is an entirely separate point from the Keynesian one, that austerity means weaker economic activity and hence lower tax revenues. Putting the two together, though, merely reinforces the point – that austerity fails, in the long-term, even in its own terms.

Now, I’m not complaining here only of Tory stupidity. A similar thing happens in the private sector. In the early 00s BP’s CEO John Browne cut maintenance spending. That raised profits. But only temporarily. The savings he made were swamped by the costs incurred when the Texas City oil refinery blew up.

Browne had an excuse. He was trying to impress shareholders who were daft enough to pay more attention to quarterly earnings reports than to the ground truth of dangerous refineries.

But who is the government trying to impress? It’s certainly not bond markets, who are happy to finance government borrowing at negative real interest rates. Instead, it’s political journalists with their silly mediamacro obsession with the “nation’s finances” and ignorance of the ground truth of whether austerity is in fact feasible in the long run.

In saying all this, I’m not arguing against restraining government spending. There is of course a case for rooting out waste and making sustainable efficiency gains. Identifying such gains, however, can’t be done by here-today, gone-tomorrow politicians and managers who care only about tough talk and impressing journalists or hitting short-term targets. Genuine, lasting restraint requires empowering public sector workers (who have both knowledge of ground truth and skin in the game to ensure efficient services in the future) to identify genuine waste. Austerity, when combined with managerialism, is just daft.