Drastic public spending cuts were the wrong deficit-reduction strategy for the weakened British economy a year ago. And they are the wrong strategy for the faltering American economy today. Britain’s unhappy experience is further evidence that radical reductions in federal spending will do little but stifle economic recovery.I couldn't agree more. The only thing missing from this article is a discussion on the high level of indebtedness of the household sector in the UK. For such an analysis, see this first-rate piece of research by economists Richard Barwell and Oliver Burrows of the Bank of England (2011:17).
A few years of robust growth would go far toward making swollen federal deficits more manageable. But slashing government spending in an already stalled economy weakens anemic demand, leading to lost output and lost tax revenues. As revenues fall, deficit reduction requires longer, deeper spending cuts. Cut too far, too fast, and the result is not a balanced budget but a lost decade of no growth. That could now happen in Britain. And if the Republicans have their way, it could also happen here.
Austerity is a political ideology masquerading as an economic policy. It rests on a myth, impervious to facts, that portrays all government spending as wasteful and harmful, and unnecessary to the recovery. The real world is a lot more complicated. America has no need to repeat Mr. Cameron’s failed experiment.
Barwell, R. and O. Burrows, "Growing Fragilities? Balance sheets in the Great Moderation", Bank of England, Financial Stability Working Paper, No. 10, April 2011.