I'm no economic expert. But much of economics is simple common sense.
So it's no big surprise to me that the British economy is faltering after David Cameron's conservative government decided several years ago that cutting government spending in a recession was the best way to stimulate growth and job creation.
Huh? This "expansionary austerity" notion is another example of faith-based voodoo economics, like believing that cutting taxes results in more revenue. That's also a myth.
Recently Nobel-winning economist Paul Krugman wrote about Europe's continuing economic problems that have been exacerbated by austerity measures. "The Austerity Debacle" shows why it's so important that the United States shun crazy Republican calls for extreme deficit-cutting when our own economy is finally starting to improve.
Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.
Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.
And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.
...Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.
...The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.
Hopefully next November those millions will remember which political party favors job creation for the 99% rather than tax and spending cuts which benefit the 1%: the Democrats.
(For some other arguments against expansionary austerity, see here and here.)