What British Austerity?


Alex Massie delivers a reality check:

It is certainly hard to make any case arguing that Cameron and George Osborne are succeeding at present but their failure can scarcely be attributed to austerity measures that have barely been implemented. For that matter, using the British experience as a kind of proxy for the American argument over government spending is a fool's mission (or, if you prefer, deliberately deceitful) since the British and American situations are rather different and, indeed, so different that you might even expect people such as Joe Klein to appreciate that fact.

I mentioned that the bigger spending cuts have not really taken hold yet. But the graph above shows the impact of a hike in the sales tax of 10.6 percent and a reduction in core spending of 2.3 percent. What you have here is a big contraction in demand – via higher taxes and lower spending – and it hasn't made a real dent on the debt because of the impact on growth. Ryan Avent considers several views on Britain's slowdown. Bottom line:

In my view, British fiscal policy has not been ideal. Britain faced very little bond-market pressure and could easily have afforded to pursue a slower fiscal-consolidation route. It would have made (and would still make) more economic sense to devote the marginal budget dollar to improving the climate for lending to small businesses, or to investment in education and research, or to infrastructure spending rather than to deficit reduction. The Bank of England has been too conservative in addressing bank-financing troubles associated with the euro crisis; indeed, the ECB has handled the issue far better. And Britain's economy does seem to face substantially greater structural problems than America's. Structural reforms might well have been a better target for the Cameron government than budget cuts.

Ryan sees a chance that the government may just about pull off the balancing act of fiscal consolidation and economic growth. But it's a very delicate balancing act, especially with the Euro-Zone in such teetering turmoil. My earlier thoughts here.