Britain's Paul Ryan

Paul Krugman writes:

In a lot of ways George Osborne, the Chancellor of the Exchequer (finance minister) is Britain’s answer to Paul Ryan. True, he’s a toned-down version — no Ayn Rand, please, we’re British — but other aspects of package are there in full force: he’s articulate, has a vision that’s completely at odds with everything we actually know about macroeconomics, and he was for a while the darling not just of the right but of self-proclaimed centrists on both sides of the Atlantic.

Osborne’s big idea was that Britain should turn to fiscal austerity now now now, even though the economy remained deeply depressed; it would all work out, he insisted, because the confidence fairy would come to the rescue. Never mind those whining Keynesians who said that premature austerity would send Britain into a double-dip recession.

Strange to say, Britain’s recovery stalled soon after Cameron/Osborne began their new policies, and the country is now in a double-dip recession.

So is Cameron rethinking his faith in Osborne? According to the FT, no:

But Mr Osborne continues to enjoy David Cameron’s backing and will stay as chancellor when the prime minister this week conducts his reshuffle, expected to take place on Tuesday.

Instead of a real policy rethink, what Cameron and Osborne apparently have in mind is rearranging the deck chairs on the Titanic a set of basically minor twiddles involving credit and planning authorizations, which seem highly unlikely to make any significant difference.

Still, there is criticism from within the Tory party — except what the dissidents want is not a return to conventional macro, but “right-wing shock therapy”.

I was particularly struck by this:

Although the chancellor insisted that the economy was “healing” he told the BBC’s Andrew Marr there were many obstacles ahead adding: “There is no easy route to a magical recovery.”

That sounds wise and restrained, but it’s actually completely wrong-headed. Britain is suffering from lack of demand; it could have a quick (not magical) recovery if policies were taken to stimulate demand. It’s the belief that the country can’t recover quickly, not the belief that it can, that constitutes economic mysticism.

And the slump — which has now, in Britain, lasted longer than the slump in the 1930s — goes on.