The failures of British austerity offer lessons for the United States, if policymakers of a certain ideological persuasion care to listen.
Britain could be on course for its third recession in four years after the economy shrank 0.3% in the last three months of 2012.
The figures were worse than expected and could put pressure on the government to consider a “plan B” that would stimulate demand.
A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December, according to the Office for National Statistics. The economy achieved zero growth for the year as a whole.
After very modest growth in the fall of 2012, the British economy has now contracted in four of the last five quarters. No wonder officials are looking for a possible stimulus.
I keep an eye on this because of its political salience here in the U.S. Specifically, this offers a reminder about the misguided economic philosophy pushed by American conservatives.
As we discussed last summer, Republican policymakers in the U.S. spent quite a bit of time arguing that the United States should follow Europe’s lead and impose austerity measures here at home. This is especially true of David Cameron’s British austerity policies, which have drawn enthusiastic praise from Republicans.
In fact, it was exactly two years ago this week when Sen. Jeff Sessions (R-Ala.) wrote an op-ed urging U.S. policymakers to follow the lead set by our friends across the pond: “We need a budget with a bold vision – like [the one] unveiled in Britain.” Around the same time, as Paul Krugman reminds us, the late David Broder urged President Obama to “do a Cameron,” praising the prime minister for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.”
We’re now witnessing the effects of the Tories’ conservative vision: a triple-dip recession. Will this deter Republicans? Probably not, but the American mainstream should take note.
In 2011, austerity’s champions – in Europe and the U.S. – said taking money out of the economy and scaling back investments will lead to stronger growth and lower debts. It’s time to ignore supply and demand, they said, and forget the successes of the Keynesian model altogether.
They were, of course, painfully wrong, but at least on this side of the pond, the same policymakers who got this backwards are still arguing that the nation should focus on the deficit, debt reduction, and slashing public investments.
The question isn’t why so many Republicans believe such nonsense; the question is why anyone still takes them seriously.
It was nearly two years ago when Richard Portes, an economist at the London Business School, argued, “My view is that we are in serious danger of a double-dip recession. This is going to be a cautionary tale.”
We now know Portes was exactly right. We also know that for Americans on the right, the lessons of this cautionary have been ignored.