I think we have enough data to close down the years-long human experiment into whether austerity hurts economies in recovery. So Britain, you can go ahead and quit it anytime now.
Britain’s economic output collapsed by 0.7% in the second quarter of 2012 as the country’s double-dip recession extended into a third quarter.
Across-the-board weakness in manufacturing and construction coupled with the loss of output caused by the extra bank holiday to mark the Queen’s diamond jubilee were responsible for the setback, according to data from the Office for National Statistics.
Analysts in the City had expected a 0.2% drop in gross domestic product in the three months to June and were stunned by the scale of the fall in activity. The decline followed the 0.3% fall in the first three months of 2012 and a 0.4% decline in the final quarter of 2011.
Just a couple artifacts about these statistics. This is the first double-dip recession for Britain since the 1970s, and the longest and biggest since quarterly record keeping began after World War II. In addition, as Matt Yglesias points out, the British economy is now smaller than it was when Conservative Prime Minister David Cameron took office in May 2010.
Britain is really the perfect test case for the proposition about austerity in a recovery. They had growing but still manageable interest rates when the austerity regime was implemented, and the recovery was on but had not taken a strong hold. Borrowing rates dropped, which conservatives interpreted as confirming their policies were working rather than a signal the market foresaw a downturn. But the economy cratered as well, and the message from the rate drop should be seen as a plaintive beg from the bond market for the UK to start spending again and restore its economy.
The country will probably have a strong third quarter, distorted by the fact that the Olympics come to town for two weeks starting Friday. But that’s a temporary condition. The British government remains committed to a set of policies that have proven beyond all doubt to be expanding human misery very specifically. Britain’s proximity to a struggling Eurozone can explain a portion of the recession. But theirs has been stronger and more significant than a region in the midst of an historic debt crisis, for no reason whatsoever beyond foolish ideology. The results are in; austerity during recovery only sends you back into recession.