Britain’s Economic Austerity Program Continues to Produce Austerity; Conservative Coalition Government Surprised and Horrified at its Own Policies

Is Britain a Harbinger of Things to be In the U. S.?

One reason why those of us in the economics profession are following economic events in Britain so closely is that it provides another experiment in whether or not Keynesian economic theory has predictive values.  With Keynesian economics, public policy to expand the economy consists of tax cuts, and increases in government spending, and increases in government spending are more effective, even when coupled with tax increases on the wealthy to pay for them.  The Dismal Political Economist has already explained the how of that, so start paying attention.

Britain elected a Conservative coalition government and they decided to take a different route to prosperity.  The government’s economic theory is that the deficit is the key problem and that the government would raise taxes and cut spending and terminate hundreds of thousands of government employees to stimulate the economy.  How does that happen?  The thinking, if it can be called that, is that after the deficit is reduced business will be inspired to hire new employees and expand production and services.



Economic Activity in Britain



So Britain is experimenting, and the results continue to come in.  Here is just the latest.

The Prime Minister admitted today that the Government had to do more to get the economy moving after "horrific" figures showed unemployment at a 17-year high, the number of young people out of work nearing a million and Jobseeker's Allowance claimants increasing for the seventh month in a row.

How bad is it?  Well there is this

Unemployment increased by 114,000 to 2.57 million in the quarter to August, the worst total since the autumn of 1994, giving a jobless rate of 8.1%, the highest since 1996.

and this

Youth unemployment reached a record high of 991,000, while the numbers claiming Jobseeker's Allowance increased for the seventh month in a row, to 1.6 million.

and this

Other figures showed a 178,000 slump in employment in the quarter to August - the biggest fall in more than two years - and the largest-ever cut in the number of part-time workers, down by 175,000.

and this

There was a record reduction of 74,000 in the number of over-65s in employment, according to today's data from the Office for National Statistics.

[Editor’s Note:  Stop it already, you have made your point!]

This is not to say that Britain’s government is not trying to do something about the state of affairs.

The Department for Work and Pensions said the 991,000 unemployed under-25s included 270,000 students looking for a job. It launched sector-based work academies, offering training, work experience and a guaranteed job interview to up to 50,000 people over the next two years, many of them young people.

Wow, over 2 million unemployed in Britain, close to 1 million unemployed among young people and the government has a program to train all of 50,000 people over the next two years and to top it off by guaranteeing, yes guaranteeing them a “job interview”. 

Seems like recovery is just around the corner (where have we heard that before?)