Saturday, December 22, 2012
Don't try do this at home kids: UK Austerity Update from NYT
The New York Times has a long look at UK austerity program under David Cameron's Conservative government. The New York Times article is here. Cameron recently announced the austerity would continue for another five years.
The UK Independent has a piece on the UK budget deficit worsening. The article from the UK Independent is here.
Here is a discussion in the London Review of Books calling the Cameron / Osborne policy a failure. The story by John Lanchester. He has a great reference in it to the International Monetary Fund's World Economic Outlook (October 2012) publication. On Page 41, of IMF Outlook, they discuss the multiplier used calculating the effect of government spending cuts on the larger economy. The IMF suggests that the GDP reduction effect could be as high as 1.7 times the cut. In other word, removing 100 Billion pounds in spending would reduce economic activity by 170 Billion pounds. Not something you want to be doing during a recession.
So you have to ask if the savings are worth crippling the economy.
In our opinion, voters want simple solutions to complicated problems and politicians are willing to do just that.
Thank goodness the US federal reserve has the right idea: Low, predictable interest rates for the short and medium term, short term stimulus until unemployment falls to a certain level and pressure on policy makers for gradually reduce long-term healthcare costs.
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