Austerity is the political-economic term for cutting back on government spending during a recession. It flies in the face of classic economics but *sounds* good on paper, if you mistakenly compare running a government to running a business or household budget.
It has failed abysmally everywhere it has been tried and the English Powers-That-Be publicly recognize that it has failed while simultaneously calling for years more of austerity, because it feels like the right thing to do. Despite every shred of evidence suggesting exactly the opposite.
This is why two million Brits went on strike this week.
Rational Irrationality: Austerity Britain: An Experiment That Failed : The New Yorker
With the euro zone on the brink of breaking up, it is easy to overlook events across the English Channel, but what is happening to the U.K. arguably has more important lessons for the U.S. In continental Europe, we are witnessing the crisis of a poorly designed monetary system that is very different from our own. In the U.K., we are seeing the results of monumental policy blunders that could well be repeated here if Republican budget hawks seize power next November.
During the past eighteen months, a callow and arrogant Chancellor of the Exchequer, empowered by a hands-off Prime Minister and backed by the bulk of the country’s financial and media establishment, has needlessly brought Britain to the brink of another recession by embracing draconian spending cuts that hark back to the early nineteen-thirties. Rather than changing course and taking measures to boost growth, the Conservative-Liberal coalition is doubling down on austerity. On Tuesday, it announced plans to extend its cuts for two more years, until 2016-2017. “Until now, we had been thinking of four years of cuts as unprecedented in modern times,” Paul Johnson, the director of the non-partisan Institute for Fiscal Studies, said. “Six years looks even more extraordinary.”
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And all this for what? With joblessness rising, spending on unemployment benefits is rising and tax receipts are coming in lower than expected. Consequently, the budget deficit is not falling nearly as rapidly as the government had hoped. To its great embarrassment, the government said it would have to borrow an additional 111 billion pounds over the next four years. Already, it is planning to issue more debt than Gordon Brown’s supposedly profligate government was planning to issue. And if growth doesn’t magically rebound in 2013 and 2014, it will have to borrow an even greater amount.
The lesson ought to be clear: advanced countries cannot simply slash their way to prosperity and fiscal balance regardless of the overall level of demand. The myth of expansionary fiscal retrenchment, which Osborne and Columbia’s Jeffrey Sachs, who advised him before he came to office, cited in early 2010, is just that: a myth. Hundreds of thousands of ordinary Brits who were protesting from Aberdeen to Bristol don’t need telling this, but, sadly, many members of the English financial and media and establishment do. Even now, they are standing behind Osborne. Only last week, the editorial page of the Financial Times said the government “should not deviate from its sensible strategy.”
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