What’s amazing about this debt limit debate, and the headlong rush to austerity, is that we have empirical evidence of what can result, in this kind of economy, when you massively roll back spending. We even know what happens when you do that amid the threat of a debt downgrade rather than the fundamentals of the financial markets. All you have to do is look to Britain, which has never been the same since their austerity package was unveiled by the Tories.
Britain’s economic recovery remains lackluster as official figures Tuesday showed growth of only 0.2 percent in the second quarter of the year from the previous three month period, in part because of the disruption caused by the wedding of Prince William and Kate Middleton.
The statistics office also said the economy during the period was heavily influenced by the aftermath of the Japanese earthquake and tsunami, record high temperatures in April and the start of ticket sales for the 2012 Olympic Games in London.
The preliminary growth figure, which is subject to revision, was in line with market. But it may put new pressure on the government and the Bank of England to take steps to quicken up the pace of recovery.
The weak second quarter followed six months of essentially no growth, with a drop of 0.5 percent in the fourth quarter of last year followed by a gain of 0.5 percent in the first quarter.
The excuses in this article are ridiculous: did the economy slow down because a lot of people missed the Tube stop at Notting Hill, too? Anyway, didn’t the William and Kate wedding produce a lot of economic activity?
The point is that Britain rolled back demand during a time when the economy was already weak, and they are suffering through the consequences. Instead of looking at this as a problem to be avoided, US policymakers are on the verge of emulating it. And not even in a good way: the British plan was at least somewhat balanced, with tax increases along with the spending cuts. This shows that the idea of a “balanced approach” is still flawed, because either way, you’re reducing demand during a time with a demand shortfall.
In a couple years, if we’re scratching our heads about zero growth, we can simply look to Britain. They are opening a window into our dim future.
UPDATE: Just to clarify, we’re talking about quarterly growth here, not annualized growth. This chart from the Financial Times tells the story. Still, even with that caveat, it’s correct to say that, over the past 9 months, the British economy has increased GDP by a paltry 0.2%. That’s practically a flatline.