The Wages of Austerity

Lord Keynes writes:

Well, surprise, surprise. Data for UK GDP in the first quarter of 2012 was recently released.

In Q1 2012 the UK economy contracted by 0.2%, which, after the contraction of 0.3% in Q4 2011, means the UK is now officially in a double dip recession. A graph of UK GDP data can be seen here: http://www.tradingeconomics.com/united-kingdom/gdp-growth

George Osborne, the UK chancellor (the British equivalent of the US secretary of the Treasury), is reportedly sticking to his plan of austerity, as you can see in the video below from the BBC announcing the somber news of recession. One can only marvel at those in this report who seem little more than apologists for the austerity, who contend that the overall UK economy is fine, if only it wasn’t for the pesky volatility in the construction industry.

All in all, this demonstrates the uselessness of the hapless Conservative-Liberal Democrat coalition government now ruling Britain.

Without getting too Biblical, one is tempted to say that the wages of the sin of austerity is economic death – a death seen in a disastrous double dip recession which hit Ireland recently as well.

One interesting observation is that the UK is following the path of Japan during the lost decade, a point which was not lost on the perceptive shadow chancellor from Britain’s opposition Labour party (despite his having one of the most unfortunate surnames for a politician I’ve ever seen!).

As I have noted before, Japan was hit by a collapsing asset bubble and debt deflationary crisis in the 1990s. After a stimulus in the early 1990s, in 1996–1997 the Japanese Prime Minister Ryutaro Hashimoto turned to austerity, including personal income and national sales tax increases. This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s.

But precious little has been learned from this experience, so it seems.

Some more analysis of the UK and the Eurozone here from Bill Mitchell: Bill Mitchell, “The UK Government in a Race with the Eurozone to Ruin their Economies,” Billy Blog, April 26, 2012.