Thursday, March 24, 2011

Conservative government's austerity strategy in the UK: Surprise! It's not working...so "Let's try it here!"

The GOP's agenda of spending cuts as the path to economic growth isn't just a dubious idea. It's a very bad reality that's not working and dragging the economy down in England, where the Conservative Party Cameron government enacted  a strategy of "austerity as the path to prosperity" last year.

As expected by most observers other than "true believers," British economic growth is in decline and tax revenues are less than anticipated, while inflation is up and their treasury has had to actually borrow more than Prime Minister Cameron's Conservatives projected.  So we can already see in the real world the "benefits" of slashing government spending - spending which in a deep recession is helping bolster an already weak economy. Not only are these "benefits" non-existent, an austerity agenda puts a drag on the economy and can actually increase budget deficits due to declining tax revenues as overall growth slows. Totally counterproductive!

The Street Light (via Mark Thoma's Economists View) has in-depth facts and figures on the British experience HERE, and concludes:
All of this is unsurprising. But it bears keeping in mind as the fiscal clown show in Washington continues, because it provides yet another piece of evidence that mainstream new-Keynesian macroeconomic theory does an excellent job of explaining and predicting real economic events. Which is why we can be fairly sure that efforts to cut government spending during a tentative and rather delicate economic recovery will have a strong negative impact...

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