And no sooner did Paul Krugman start worrying about the effect of rapid deficit reduction on business confidence than this came across the luminiferous ether:
BBC News - UK business confidence sees 'record drop': Business confidence among UK firms has seen its biggest drop since 1995 due to the government's rhetoric on spending cuts, a survey suggests. The Business Trends survey from accountants BDO fell to 97 in May from 103.3 the previous month - the largest drop since the survey began.... BDO's survey is compiled by the Centre for Economics and Business Research and covers 11,000 companies from a range of industries.... The accountancy firm forecasts that economic growth will remain below an annualised 1% in the final three month of this year.... Government forecasts for growth in 2011 should now be between 1.5% and 2.5%, well below the 3% to 3.5% that the previous government estimated, the firm said. "Freefalling business confidence paves the way for downwards growth revision," it concluded....
[R]ecent government pronouncements on the need to make drastic cuts, BDO says, could lead to even lower growth. Last week, Prime Minister David Cameron warned that dealing with the deficit would be "unavoidably tough" and affect "our whole way of life". Chancellor George Osborne has identified £6.2bn of savings and outlined cuts to quangos, spending on consultancy and big IT projects, and a civil service recruitment freeze. More detail on the cuts will be announced next Tuesday in an emergency budget. The UK, along with other European economies, is looking to cut sharply its budget deficit, which grew sharply after government intervention during the financial crisis.
Countries with high deficits, most notably Greece, have to pay higher rates of interest to borrow from international investors to service their debt, which serves only to compound the problem.
The BBC flunks the Turing Test with that last paragraph. Just sasying.
Yet another demonstration of the fact that sometime in 2000 we entered a strange world in which Paul Krugman is always right. If we are going to live in such a world, I really, really wish that he had a sunnier and more optimistic disposition. It would make things much better...
