The United Kingdom’s breathless pursuit of austerity under Prime Minister David Cameron was aimed sparking economic growth and reducing deficits. Three years after the conservative government began its deficit reduction efforts, though, it has failed to do both. Britain is now on the brink of its third recession in four years and its economy is still smaller than it was when the Great Recession began.
Persistently high unemployment and that lack of economic growth — caused by fiscal contraction — have left the UK far short of its deficit reduction goals, as this chart from the Wall Street Journal shows:
In 2010, Cameron and finance minister George Osborne projected that their austerity package would by now have reduced deficits from 4.8 percent of the economy to just 1.9 percent. At the beginning of 2013, the deficit stood at 4.3 percent. Still, Osborne and Cameron remain committed to austerity, with Osborne telling the BBC last week, “You can’t get out of debt crisis by borrowing more and more.” But Britain doesn’t have a debt crisis — its borrowing costs are at historic lows. It has an unemployment and growth crisis that a growing number of economists are begging the conservative government to address.
That should be a lesson to lawmakers in the United States, which emerged from the Great Recession in better shape than its friends across the Atlantic because it chose to stimulate the economy instead of cutting spending. Congress is committed now to a similar path of deficit reduction, even though countries that have tried it have entered an austerity death spiral — as they attempt to reduce deficits, they instead reduce growth and inhibit their ability to reduce deficits. The U.S., like Britain, is nowhere near a debt crisis. Still, lawmakers are insistent on cutting spending, even though unemployment is still high, spending has plateaued, and fiscal contraction has already hampered America’s tepid economic recovery.