## Contractionary Policy Is Contractionary Watch: The United Kingdom

As I have said before, if m is the multiplier, t is the marginal tax rate, s is the share of the recession rise in unemployment that turns into a permanent rise in unemployment, r is the real interest rate on government debt, and g is the economy's growth rate, an austerity program of spending cuts makes the long-run deficit and debt outlook worse if:

mt > (r - g)/(r - g + s)

and makes the short-term debt-and-deficit outlook worse if:

mt > 1

Right now we are almost surely in the first regime. And it looks as though Britain right now may be in the second:

BBC News - UK public borrowing higher than expected in April: The UK saw its worst April public sector net borrowing on record last month as tax receipts fell, the Office for National Statistics said. Public borrowing, excluding financial interventions such as bank bail-outs, hit £10bn, compared with £7.3bn the previous year.... April's figure was higher than many analysts' expectations of about £6.5bn. Economists said the figures were a surprising disappointment. "The public finances have got off to a pretty bad start this year," said Hetal Mehta, at Daiwa Capital Markets. She warned that the position could worsen if economic growth was weaker than expected. Samuel Tombs, at Capital Economics, said he believed the government would struggle to meet its borrowing forecasts this year...

For Britain to miss its deficit target by $5 billion in a month is like the U.S. missing its deficit target by$360 billion in a year--it's not a small miss. Just saying...