Austerity will work…….. we’re sure it will. Because it sounds very, very serious.
From Dr. Krugman today.
Schularick and Taylor have an update to their article on post-crisis economic performance. They previously showed that the United States is doing a bit better than one might have expected from the historical record. Now they show that the UK is doing significantly worse:
The pink range indicates the expected recovery path. As we noted in our original column, the US exceeds expectations here. The US growth path manages to emerge from and stay above the predicted range by years 3-4-5 (i.e. 2010–12). In contrast, the UK path is disappointing, and can’t really be called a recovery yet.
Even using the maximal measure of excess credit based on bank and shadow bank data to bias the forecast path down as far possible, it is still not possible to account for the UK’s dismal performance. The UK was on a similar path to the US in years 1-2 (2008–09), but falls well behind the US in years 3-4 (2010–2011), only to drop below the forecast range in year 5 (2012).
Future economic historians will debate whether US policy in recent years can take some credit for supporting the economy at a level above a range of plausible alternative paths. But the UK’s policy choices will not find refuge so easily, since there the output path has now diverged below what a wide range of plausible historical projections might excuse.
Gee, remember the enthusiasm with which the Cameron/Osborne turn to austerity was greeted by VSPs on both sides of the pond, with David Broder urging Obama to “do a Cameron”?