It seems like the meaning of the word 'austerity' has transmuted over the past five years, from referring to the balance of fiscal policy, to purely relating to spending issues. For example, Jeremy Corbyn's Labour is widely interpreted as being anti-austerity, both in the popular imagination, and even by Keynesian economists like Simon Wren-Lewis. But his shadow chancellor, John McDonnell, has promised to aim for the same fiscal policy as George Osborne, the man most closely associated with UK austerity! I suspect that the process has gone something like this:
- Osborne proposes a fiscal policy that is genuinely austere in Keynesian terms—i.e. he aimed to close the deficit year-on-year 2010-2020 on whatever measure you like (cyclically-adjusted, current budget, raw deficit)
- This is attacked as fiscal austerity, which is inappropriate, according to New Keynesian economists (i.e. the mainstream of macro), when the central bank's policy interest rates are at the Zero Lower Bound while it is nevertheless undershooting its macro targets (not that it actually was undershooting these targets)
- The popular mind associates 'austerity' with Osborne's economic policy generally, the most concrete and close-to-home example of which is reduced public services spending, rather than the less tangible (supposed) aggregate demand deficiency (supposedly) driven by fiscal austerity
- Thus 'austerity' is associated not with the budget balance (or any adjusted measure thereof) but simply the spending side of the government's balance sheet, and its general approach to public expenditure (e.g. Robert Peston's definition of austerity as "public spending cuts in a recession")
Alternatively, this meaning change might indicate that the right won the battle on fiscal austerity.
Inflation was well above target despite austerity and the zero lower bound—monetary policy was dominant. Unemployment crashed, employment rose to its highest ever level and highest ever rate as a percentage of the working age population. Slow growth (surely driven by poor productivity) during 2011 and 2012 turned around, and even labour productivity growth might be returning. Wages may now be seeing solid real growth for the first time in years, just as inflation dips into negative territory and GDP grows solidly.
If fiscal austerity is supposed to hurt the economy through reduced aggregate demand and employment then it doesn't feel like such a great argument to hit the Tories with—austerity hasn't seemed to work that way. But if 'austerity' is used as a nebulous term for a general agenda, like 'neoliberal', then it might have legs. Its credibility is helped by the ambiguity it's given when mainstream macroeconomists use it to describe ostensibly similar (but actually quite different) things.
This leads to an interesting symmetry. Wren-Lewis and others have attacked the government for using deficit reduction as an excuse to cut social programmes that he believes they actually want to do for other (ideological) reasons. It seems to me that we're also seeing the converse: those opposing spending cuts for their own ideological reasons use the language of macroeconomics, like 'austerity', to give themselves their own political cover.