From the UK Office for National Statistics:
Provisional estimates for current month
- a current budget deficit excluding the temporary effects of financial interventions of £11.1 billion billion in March 2012
- net borrowing excluding the temporary effects of financial interventions of £18.2 billion in March 2012
- net debt excluding the temporary effects of financial interventions was £1022.5 billion, equivalent to 66.0 per cent of GDP
Net debt of 66% was apparently the highest on record. So despite the Chancellor George Osborne attempting to cut deficit and reduce debt, the outcome is not what he wanted.
As said earlier today, austerity does not work as it was imagined by politicians advocating austerity. The effect of cutting government expenditure (and raising tax rates for that matter) not only reduces the contribution from the government towards the GDP calculation, reduced spending will ripple through the economy (Keynesian multiplier, if you will), leaving consumers with less money to spend, and in turn businesses having poorer profitability, giving more negative impact on the GDP calculation.
Do note, however, that this is the reality of how the economy works, not so much that I am very keen to see the UK or Europe to increase public spending. In other words, this is a description of how the economy works, so a theory for prescribing policy as far as I am concerned.
This article originally appeared here: Here’s why austerity did not work
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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