We’ve been on this kick for a long time, so it’s nice to see it percolating into the general consciousness.
What’s happening in the UK is contrary to the notion that we need to cut spending to create jobs. At least in the short term, austerity is painful and negative to the economy.
The New York Times takes a big look at what’s been happening:
But in Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.
Retail sales plunged 3.5 per cent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the centre for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 per cent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.
The article implies that somehow this news should or could inform the US debate, but we’re pretty doubtful. Most discussion of spending and taxes and deficits is based on politics, and not really economics (on both sides), so evidence is routinely ignored.
But for investors, this is certainly useful as a guide to how the economy would react if the brakes really are slammed on spending.
And lest you think this is easy after-the-fact analysis, it was easy to see this coming. Here we were last June predicting this.