As Europe Turns, Ctd


Britain is now officially – and unexpectedly – in a double-dip recession. Maybe revised stats will change this. But more worrying is that most of the cuts in spending have yet to really bite. The debt is, however, currently stable, even if growth is lower than anemic:

Figures released yesterday by the ONS showed that the government borrowed £2bn more than expected in March, but managed to meet its full-year target because of downward revisions to previous months. Total borrowing for the financial year came in £11bn lower than the same period last year, providing relief for the Chancellor who has repeatedly restated his commitment to austerity in an attempt to drive down the deficit and preserve Britain’s AAA credit rating.

Ratings agency Fitch put the UK on negative outlook last month, meaning that there is a one in two chance that the UK's credit rating will be downgraded over the next two years.

Joe Weisenthal plays "spot the Tory" on the above chart (made by Scott Barber):

[T]he first thing to note is that the US has recovered WAY better than either the Eurozone or the UK. So if you think Obama has been a disaster, you might first acknowledge that the US has performed better than all its major Western peers. But beyond that, check out the UK line. The UK was recovering on a fine trajectory right up until early 2010, at which point UK growth hit a brick wall. What happened in 2010? That's when conservative David Cameron came to power with an agenda of reigning in the debt.

Krugman (justifiably) preens:

It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case — that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks — was the Keynesian position. The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite.

And now the results are in: Keynesians have been completely right, Austerians utterly wrong — at vast human cost.

The Tories, like Obama, inherited a huge debt, and with a much more vulnerable currency than the dollar, they opted for Romney-style austerity swiftly to avoid the fate of Greece and currency speculators. But if austerity kills growth and thereby revenues, the debt problem can worsen. And Britain, remember, isn't in the Euro-Zone; it has some currency flexibility to ride some of the shocks. Even so, the passage this ship has to pass through to growth and lower debt is getting narrower and the rocks and tides more treacherous. The goal of structural fiscal balance within one five-year parliament has already been abandoned in the face of reality.

As I've said before, I have a long record of fiscal hawkishness. I'm a Tory and want them to succeed. But the one time I worry about fiscal retrenchment is in a period of global recession, where premature austerity can hurt, not help. The key is to stimulate enough to get the economy moving on its own momentum and then phase in serious long term structural budget cuts and tax reform. There remains a chance that the US can pull this off – because of Obama's stimulus and extension of the Bush tax cuts. But a sudden collapse in demand that would occur if no post-election deal is reached could change all that – and put America on Europe's path. As would a Romney presidency, as Ezra Klein helpfully reminds us.