A point I have repeatedly made about George Osborne’s plans for a new wave of austerity, confirmed in his Autumn Statement today, is that they risk making the same mistake as 2010, writes Professor Simon Wren-Lewis.
Short term interest rates will be only just above their lower bound in 2015, at best. Large cuts in government spending from 2015 on will reduce aggregate demand. So if something goes wrong (and the list of possibilities is long), monetary policy will not be able to come to the rescue.
The OBR conservatively calculate that austerity reduced growth by 1% in financial year 2010/11, and by 1% in 2011/12. As a result, the recovery in those years faltered. Are we going to be saying the same thing in 2016 or 2017?
Read the Mainly Macro article for Professor Wren-Lewis’s prediction. He concludes:
Politicians are fond of talking about the challenges facing the economy, but this is one that the government itself proposes to create. It is a challenge the UK economy could do without.
Follow me on Twitter: @MidWalesMike
Join the Vox Political Facebook page.
Vox Political needs your help!
If you want to support this site
(but don’t want to give your money to advertisers)
you can make a one-off donation here:
Buy Vox Political books so we can continue
bringing you the best of the blogs!
Health Warning: Government! is now available
in either print or eBook format here:
The first collection, Strong Words and Hard Times,
is still available in either print or eBook format here: