George Osborne’s outer fringes
Here’s George Osborne in The Daily Telegraph today justifying his deficit reduction plans:
“The alternative of more spending and yet more borrowing is now frankly ludicrous and places those who advocate it on the outer fringes of the international debate.”
Well, in that case the Chancellor considers Nouriel Roubini, the economist who predicted the 2008 meltdown, to be on the outer fringes and spouting ludicrous ideas.
In the Financial Times today Roubini argues (subscription):
“The best bet is for those countries that have not lost market access – the US, UK, Japan, and Germany – to introduce new short-term fiscal stimulus while committing to medium-term fiscal austerity.”
I’ve got another bone to pick with the Chancellor’s column. He argues:
“The US economy has grown more slowly than the UK economy so far this year, despite fiscal stimulus in the former and fiscal consolidation in the latter.”
This is misleading on three counts.
First, although US growth in 2011 has been poor, the UK has hardly been roaring ahead (0.7% growth here vs 0.4% growth there).
Second, the US stimulus package had its greatest impact in 2010. And the Congressional Budget Office predicted last year that the impact of the stimulus would diminish in 2011 (see Table 1 on page 2). The Chancellor is not comparing full-on stimulus with full-on austerity.
Third, despite this year’s alarming slowdown, the US has already caught up* to its pre-2008 economic output levels. The UK is still some 4 per cent off where it was before the recession. This graph (courtesy of the FT) illustrates that.
The notion that “austerity” UK is doing better than “stimulus” US is a dog that simply will not hunt, however hard the Chancellor blows the horn.
*A tweeter called impedant points out, rightly, that the recent downgrade of the US GDP figures for the first quarter means that the America is still below it’s pre-crisis peak. It is still, however, much closer to that peak than the UK.Tagged in: daily telegraph, Financial Times, george osborne, Nouriel Roubini
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