When David Cameron became prime minister of Britain and announced his austerity plans -- buying completely into both the confidence fairy and the invisible bond vigilantes -- many were the hosannas, from both sides of the Atlantic.
Pundits in the United States urged President Obama to "do a Cameron"; Mr. Cameron and George Osborne, the chancellor of the Exchequer, were the toast of Very Serious People everywhere.
Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s.
Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.
Now, the defense I hear from Cameron apologists is that the austerity mostly hasn't even hit yet.
But that's really not much of a defense.
Remember, the austerity was supposed to work by inspiring confidence; where's the confidence? Basically, the expansionary aspect should already have kicked in since it's all contraction from here.
Needless to say, Mr. Cameron and Mr. Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.
The New Voodoo
Every time I think we might be making progress against the prejudices and myths that pass for judicious thinking these days, something like the recent editorial in the Financial Times comes along to renew my despair.
The editorial, published on April 25 and titled "Britain Faces Up to the Double-Dip Test," is a response to the latest bad economic news in Britain, which the writer says offers no reason at all to reconsider austerity policies. Here's the substantive argument, in full: "Ed Miliband, the leader of the opposition, predictably used the figures to attack the coalition for 'cutting too far, too fast.' But this is unconvincing. There is no guarantee that under a more expansionary fiscal policy the British economy would be doing significantly better. And set against this is the risk that the U.K.'s low borrowing cost might rise."
This is really extraordinary, if you think about it for a minute.
It's true that there is "no guarantee" that Britain would be going better with less austerity; nothing in life is guaranteed. Hey, my cup of coffee might suddenly turn into a block of ice -- thermodynamics is just statistical, you know. But there is now overwhelming evidence that contractionary fiscal policy is contractionary; not least from the results of austerity in Europe. Somehow, though, the Financial Times feels able to reject this evidence based on … what?
Then there's the assertion that bond yields might rise. Well, sure, and there might be a flu outbreak, or whatever. But nothing in recent experience suggests that countries with their own currencies are at risk from an attack by bond vigilantes -- Japan's 10-year bond rate, after more than a decade of warnings that the bond crisis was coming any day now, is 0.91 percent.
Furthermore, eminently respectable economists now argue persuasively that austerity in a deeply depressed economy may well be self-defeating, so that backing off such austerity should encourage, not worry, bond investors.
So the Financial Times's argument boils down to the assertion that Britain must stay the course lest it be forsaken by the confidence fairy and attacked by misguided invisible bond vigilantes.
And whoever wrote that imagines himself to be sensible and judicious.
Britain
A RETURN TO RECESSION
British officials announced on April 25 that the nation's economy had unexpectedly shrunk by 0.2 percent in the first quarter of 2012, indicating that it was in a double-dip recession.
Responding to the report, the Financial Times pointed out in an editorial that the British economy recovered more quickly after the Great Depression, calling this the "slowest recovery in a century." The editorial explained: "Even in the 1930s, the economy had made good all of its losses by this point."
The data suggests that the contraction in Britain's economy -- its second recession in three years -- was mainly due to a drop in the construction industry and sluggish growth in the service industry.
Reacting to the opposition's argument that spending cuts are doing the economy more harm than good, Prime Minister David Cameron said in a speech to Parliament that his government would not change its austerity-driven policies -- it was still on track to eliminate most of the nation's budget deficit by 2017, as planned. A spokesman for Mr. Cameron told the Belfast Telegraph that "the one thing that would make the situation even worse would be to abandon our plan and deliberately add more borrowing and add to debt."
The double-dip recession came as a surprise because economists had predicted that Britain's economy would grow by 0.1 percent in the first quarter of 2012. Others have suggested that the Bank of England is unlikely to provide stimulus through quantitative easing. The economies of Spain, Italy, Greece, Belgium, the Czech Republic and the Netherlands are also in recession.
Obama
Obama Campaign Lacks Focus
Edward Luce says what many of us have been thinking: there's a dangerous lack of focus in the Obama campaign, all too reminiscent of previous episodes.
Mr. Luce, a columnist at the Financial Times, wrote on April 22: "In the absence of a lift-off, Mr. Obama will be vulnerable to the question Reagan posed to voters in 1980 when he turned Jimmy Carter into a one-term president: 'Are you better off than you were four years ago?' Mr. Carter had no real comeback. Mr. Obama is still struggling to find his."
Above all, President Obama isn't telling a clear story about the economy.
What should that story be? Mr. Obama's defenders do in fact have a clear story, which goes like this: he was confronted both with a very bad economy and with complete political obstruction -- which mattered, by the way, even when Democrats controlled both houses of Congress, because of the filibuster. So he did what he could, via stimulus and other policies, and pulled the economy back from the brink. If he hasn't done more, well, maybe he could have gotten a somewhat bigger stimulus, maybe he could have done more on housing relief, but on the whole he did pretty well given the political environment.
Let's not get into the question of whether he could, in fact, have done considerably more. The point for now is that this is not the story the administration has been telling, at any point. First they insisted that the clearly inadequate stimulus was just right; then they tried various anodyne slogans nobody remembers, all of which seem to imply that we're doing just fine.
Presumably this reflects the judgment of the political team, which apparently believes that pointing out obstruction conveys an impression of weakness, and that happy talk is better than a Trumanesque campaign of hammering the do-nothing Republicans in Congress. But I have seen nothing these past three years suggesting that the political team has any idea how to play this game -- and the happy talk leaves them completely flatfooted every time the economy underperforms.
For the past few months there has been an evident drift into complacency, a belief that a string of good jobs numbers will validate the happy talk.
That's a bet that can easily lose Mr. Obama the election.
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