UK Triple-Dip Recession (and how we didn’t let it happen here)
As Evan wrote the other day (which was then repeated nearly verbatim by Paul Krugman), the most important part of Obama’s inauguration speech for the economy was how little he talked about it:
Obama’s second inaugural speech was 2,214 words long, but two very important words never got said: economy* and unemployment. In fact, the subject of the struggling economy that dominated Obama’s first term never came up. Ask yourself: when was the last time you heard a major address that didn’t center entirely upon jobs, growth, and the woes of recession?
Let’s hope that this is a sign of the diminishing importance of the deficit hand-wringing crowd who have been consistently wrong throughout the recession. Where this connects with Obama’s inauguration non-mention of the economy is that it demonstrates the benefit of the US being the least willing to implement unnecessary, pointlessly savage austerity. Not that a lot of Very Serious People haven’t been advocating for it, but (and here we may want to thank the dysfunctional Congress) very little was actually implemented.
As a result, we avoided the fate worse than deficit: triple-dip recessions. If you want to see what would have happened if we had moved down the path of harsh austerity during a slow recovery, just look at the UK:
It’s no accident this era of zero growth has coincided with an era of austerity. Despite entering office with borrowing costs at 50-year lows, the Cameron coalition decided the government deficit, and not the growth deficit, was the chief threat to future prosperity. It raised taxes and cut the growth of spending, but did so with little regard for what constituted smart cuts and what did not. As Portes points out, public net investment — things like roads and bridges and schools, and everything else the economy needs to grow — has fallen by half the past three years, and is set to fall even further the next two. It’s the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn’t completely cripple you. Austerity has driven down Britain’s borrowing costs even further, but that’s been due to investors losing faith in its recovery, rather than having more faith in its public finances. Indeed, weak growth has kept deficits from coming down all that much, despite the higher taxes and slower spending. In other words, it’s economic pain for no fiscal gain.
Really, I don’t need to add much to that lesson except to quote further the reference to “Keynes’ maxim that the boom, not the slump, is the time for austerity”. Hopefully the fading importance of the deficit chickenhawks will allow the US to fully avoid the experience of the UK.