“…Britain ‘Does’ Austerity So The US Doesn’t Have To…” 

“…The country’s experiment in austerity has provided the US with valuable information: – it doesn’t work.

A little less than two years ago, the people of the United Kingdom made an implicit deal with the people of the United States.

They installed a government that committed itself to an austerity package as the best way to deal with the ongoing effects of the recession.

Rather than trying to boost demand with increased spending or lower taxes, the Conservative-led coalition government committed itself to an agenda of spending cuts and tax increases.

The argument was that the financial markets would be impressed by the UK’s commitment to reducing its budget deficit.

This would supposedly lead to lower interest rates which would help to boost investment, housing and consumption.

Lower interest rates should also reduce the value of the pound relative to other currencies.

That would make imports more expensive for people in the UK, leading to fewer imports.

It would also make exports cheaper for people in other countries, thereby increasing exports.

Fewer imports and more exports would provide a further boost to demand.

The commitment to deficit reduction was also supposed to instill confidence in business.

They would see that the UK had a responsible government in power that would ensure that the debt would not get out of control.

This would encourage them to invest, since they could be assured that the UK had a stable future – and there was no reason to fear a Greek-style debt crisis.

We have now had almost two years to evaluate the effects of the UK’s austerity policy -

- which is longer than most governments get to test the results of their policy experiments…”

(cont..)

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  Britain ‘Does’ Austerity So The US Doesn’t Have To       : Information Clearing House.

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