British Austerity

The Cameron government in the UK is busy testing the hypothesis that the way to economic recovery from a severe recession is to drastically reduce government spending.

How is that working out? Not so well, according to the latest information from the Financial Times. While the government is touting GDP growth in the first quarter of this year, it is only 0.5%. That offsets the previous quarter's decline of 0.5% and shows the British economy essentially treading water.

Britain's opposition finds the performance unimpressive. Mr. Balls, the chancellor of the shadow (opposition) government in waiting, observed that Chancellor Osborne “doesn’t seem to understand that without jobs and growth you can’t get the deficit down. The slower growth, higher unemployment and higher inflation we now see under George Osborne means he is now set to borrow £46bn more than he was planning to. That’s a vicious circle and makes no economic sense at all.”

Regrettably, our own deficit hawks seem bent on leading us down the same path.

By the way, the "austerity will get us out of recession" hypothesis has been tested before. We tested it in 1929. Japan tested it in the 1990's. It doesn't work.