British Experiment With Austerity Has Lessons for the US
Paul Ryan has an attack op-ed in the Washington Post today, basically getting his shots back at Barack Obama for criticizing his austerity/privatization budget. In the few insult-free moments, he calls his plan “a budget for the 21st century.”
I suppose I could go line-by-line on the op-ed, but what’s the point? It’s mendacious and obfuscatory and not really worth the time. But I’m left with that image of a budget for the 21st century. Because we already have a living example of Ryan’s kind of vision, right here, in the 21st century. We have it in Britain. The Tories’ austerity budget is a pretty good analogue to Ryan – and in some ways, given the overall reduction in spending, to the Obama plan. And what have we learned from that experience? Well, we’ve learned that austerity doesn’t work, especially not in the current circumstances.
Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.
All of which has challenged the view of Britain’s top economic official, George Osborne, that during a time of high deficits and economic weakness, the best approach is to aggressively attack the deficit first, through rapid-fire cuts aimed at the heart of Britain’s welfare state.
Doing so, says Mr. Osborne, the chancellor of the Exchequer, secures the trust of the financial markets, and thereby ensures the low interest rates necessary for long-term economic growth.
Sadly, I don’t think US policymakers are watching anything happening in “Old Europe.” But Matt Yglesias makes the right point – interest rates are already at the zero lower bound in the US. They can’t really go any lower. And cheap and available credit means little to debt-sagged consumers, or firms who cannot sell as much as they can produce because of a demand shortfall.
We don’t use things like “evidence” in policy debates. But if we did, we could point to Britain, and see the collapse of their economy as a cautionary tale for austerians in the US. In fact, the Ryan budget is worse, because it attacks programs like Medicare and Medicaid in a way that the Tory budget doesn’t attack the NHS. And the Tory budget has some revenue increases, and maintains a top tax rate of 50%. Yet the trajectory is largely the same. And it’s not working.