OK, the Conservatives have posted their austerity budget, as they promised before even finalizing a coalition with Liberal Democrats in Britain. Where's the electoral reform bill that was supposed to be a main part of the deal for Lib Dems? I give the coalition about six months to deliver before Nick Clegg loses his head as Lib Dem leader.
More on the likely-to-fail austerity fad from Krugman, along with what brought Britain to this pass:
Over-reliance on the financial industry largely explains why Britain, which came into the crisis with relatively low public debt, has seen its budget deficit soar to 11 percent of G.D.P. — slightly worse than the U.S. deficit.
And, what's behind this all:
Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative.
Indeed, there has been a noticeable change in the rhetoric of the government of Prime Minister David Cameron over the past few weeks — a shift from hope to fear. In his speech announcing the budget plan, George Osborne, the chancellor of the Exchequer, seemed to have given up on the confidence fairy — that is, on claims that the plan would have positive effects on employment and growth.
And, what's likely to result:
What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.
If Britain 2012 looks even close to Britain 1931, even if Clegg has his electoral reform agreement, he'll be out on his ass, in all likelihood.
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