Sunday, January 29, 2012

More Evidence that a Policy of Economic Austerity Works – It Works to Produce Austerity

That Has to Be a Revelation to Many

Via Paul Krugman we have an analysis of the  British experience of what happens to economic growth following the peak period before a recession.  As one might imagine the economy declines, bottoms out and then rises.  Well this what would happen under normal policy, but it will not happen if a country adopts a policy to keep it from happening.

Such is the case in much of Europe.  In Britain in particular a ruling coalition headed by the Conservative party decided that the way to bring about prosperity was to raises taxes a little and cut government spending a lot and get rid of at least 400,000 public employees.  This chart shows how things have gone relative to the level of recovery from previous recessions.

The point that is made by the chart is nice expressed by Mr. Krugman.

As Jonathan Portes at Not the Treasury View points out, the ongoing slump in Britain is now longer and deeper than the slump in the 1930s (the figure shows how far real GDP was below its previous peak in various British recessions; the red line is 1930-34, the black line the current slump):

And Mr. Krugman takes a nicely deserved victory lap

I believe that when I began criticizing the Cameron government’s push for austerity, some right-leaning British papers demanded that I shut up. But the original critique of austerity is holding up pretty well, if you ask me.

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