Dean Baker breaks down how British austerity policies have contributed to anemic growth that’s even weaker than the U.S.
To recap, austerity in the middle of an economic downturn or extremely weak growth makes both the economic situation worse and the deficit situation worse. How?
All spending = all income.
All deficits = all surpluses
These are basic accounting identities; there’s no way around them.
If the government sector pulls back demand by reducing spending during a time when the private sector is already not spending (high unemployment, household indebtedness), then of course growth will decline, as the data shows in the article. Those in the U.S. in both parties who want to reduce deficits and debt and spending are also basically calling to reduce income and growth. At present time, deficits should be the least of our concerns.
Let’s end with another accounting identity:
Private sector surplus = government deficit plus the foreign trade balance