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Gayle in MD
06-24-2011, 12:01 AM
How The World Works
Bad medicine alert: Austerity in the U.K.
A lesson for U.S. politicians: Spending cuts in Britain are forcing more government borrowing, not less
By Andrew Leonard


The basic case against pursuing austerity -- i.e. big government spending cuts -- when economic growth is sluggish or in danger of slipping into recession is simple: a dose of harsh medicine risks making the patient even worse off.

There are two dangers. The first is that a government which cuts spending too soon sucks demand out an economy that isn't replaced by private market forces. So economic growth slows even faster. The second, related worry, is that a slowing economy results in higher social welfare payments -- more unemployment benefit checks, etc -- which requires the government to borrow more money. Since the point of austerity, theoretically, is to reduce government debt, it should be easy to see why it just isn't optimal policy to strangle the economy if the goal is to make into the black.

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Some fresh economic data fresh from the United Kingdom, where austerity policies have been in place for several quarters, amply illustrates the point.

From the LabourList blog via RortyBomb.


...[G]overnment borrowing in the first two months of this financial year has been higher than in the previous financial year.... Government borrowing in April and May 2011 has been 27.4bn pounds, against 25.9bn poundsin the same two months of 2010 - an increase of 1.5bn pounds. Perhaps the most interesting figure though comes not in the headline borrowing but in the underlying data. Central government spending on "net social benefits" rose by 1.9bn pounds in April & May 2011 compared to 2010 -- in other words the overshoot in borrowing is being caused by a rising welfare bill...


Recessions are bad for government finances. For that reason alone, governments should avoid causing recessions. A long-term plan to balance the budget is a fine, upstanding idea. <span style='font-size: 14pt'>But rash spending cuts in the short term will make achieving that balanced budget goal harder. Just ask the U.K.</span>Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More: Andrew Leonard

LWW
06-24-2011, 05:09 AM
This is actually true to an extent . But it is like arguing that if the surgery makes the patient feel worse for the first 3 days, which it almost always will, but allows them to live for decades longer ... it's better to let them die than to go through the weekend less comfortable than they would have been when dead.

Sev
06-24-2011, 06:00 AM
If you dont feel pain you will never learn.

llotter
06-24-2011, 07:44 AM
An time worn but equally good analogy is that of drug addiction. We are addicted to living beyond our means on debt and hoping the collection company never wanted payment. HaHa... the joke's on us.

Our whole society has been misled by the statist/liberal ideology and now don't want to face the consequences.

Sev
06-24-2011, 01:51 PM
They will keep squealing until the roof finally caves in.