The Great British austerity experiment: Three months ago, I noted that the United States might benefit from the pain being suffered by the citizens of the United Kingdom. The reason was the new coalition government's commitment to prosperity through austerity. As predicted, this looks very much like a path to pain and stagnation, not healthy growth. That's bad news for the citizens of the United Kingdom. They will be forced to suffer through years of unnecessarily high unemployment. They will also have to endure cutbacks in support for important public services like healthcare and education.
But the pain for the people in England could provide a useful example for the United States....
While the UK seems to be doing its part, the key question is whether anyone in the United States is prepared to take the lesson.... [T]he predictable result of austerity is slower growth and higher unemployment. The UK has volunteered to be our guinea pig and test this proposition. For now, it looks like things are going just as standard economic theory predicts: the economy is slowing and unemployment is likely to rise.
Hopefully, citizens of the UK will tire of the rhetoric of austerity as a way to make politicians feel good about tightening other peoples' belts. Maybe the Liberal Democrats will break away from the coalition and force new elections.
From this side of the pond, though, the goal is simply to encourage people to pay attention. The UK might be home to 60 million people, but from the standpoint of US economic policy, it is simply exhibit A: it is the country that did what our deficit hawks want to do in the US.
The takeaway lesson should be "austerity does not work; don't go there." Unfortunately, in the land of faith-based economics, evidence does not count for much. The UK may pursue a disastrous austerity path and those of us in the United States may still have to follow the same road anyhow. But we opponents of that course all appreciate the willingness of the UK to demonstrate the foolishness of this action.