Sunday, December 8, 2013

George Osborne Declares Victory For Austerity In UK

The UK economy is growing again.  The champion of austerity in the UK used the occasion of positive growth to argue that his austerity plan worked.  This article reviews the evidence and disputes Osborne's victory celebration.  It argues that procyclical fiscal policy delayed the recovery and that counter cyclical monetary policies implemented by the Bank Of England was responsible for the recovery.  Low interest rates have produced a revival in the real estate market. 

Unlike a sporting event in which the final score is understood by everyone, it is not easy for the public to determine whether Osborne's declaration of victory is legitimate.  He selected his scorecard wisely, and many will cheer his victory march.  They will not remember that the austerity measures were implemented to reduce the level of public debt in the UK.  The debt to GDP ratio reached a peak at 70% prior to the implementation of austerity.  It is forecasted to rise to 80% by 2015-16.  Austerity has increased the level of public debt rather than reducing it.  That will give the conservative government a perpetual justification for more more austerity.  Many believe that the real purpose of austerity is to reduce government spending on social welfare programs. 

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