Are the British natural Austerians?
Reader Bill Spight writes from the US, pointing to today's Brad Delong article and asking if I think the British psyche has a special tendency towards austerity. I hadn't read Delong's piece (I find his blog a little too predictable usually, and while I agree with much of what he says, I don't need to re-read the same opinions every day). He is quite right, though, about the Tories' lack of a real economic theory behind their actions. Osborne obviously has some acquaintance with economic theory - though it may be selective. He understands the idea of crowding-out, the impact of long-term interest rates on private investment, and the idea that monetary policy can sometimes compensate for fiscal policy. But the current cuts are more driven by political ideology than economics. Notably, they fail to understand the difference between public borrowing in an economy with high unemployment and output gaps, and in an economy running at full capacity. This of course is ...