Austerity, Recession and Staving off Boomergeddon

A year and a half ago, I went out on a limb and predicted that the budget austerity plan implemented by the newly elected Conservative Party in the United Kingdom would pay off. While chopping down the size of the budget deficit would act as a Keynesian-style depressant on the economy, I hoped that re-establishing credible budget discipline would reinvigorate private investment and help the U.K. economy skirt a recession. The results of the English experiment, I suggested would serve as an economic model for the United States to either emulate or avoid.

Well, as much as it pains me to say it, I was wrong. The U.K. slid back into a recession in the 1st quarter of 2012, shrinking 0.2% after contracting 0.3% the previous quarter. That’s extremely mild as far as recessions go, especially considering the weakness of the Euro-zone economy as a whole, but a recession it is.

Reports the Wall Street Journal: “Recession’s return will provide fresh ammunition to opponents of Chancellor of the Exchequer George Osborne’s austerity drive, an aggressive program of tax rises and spending cuts aimed at closing a persistent budget deficit that critics say will strangle growth.” Read more.....