The latest issue of Bloomberg Businessweek tells us that Britain’s “austerity” program continues to hurt Conservative Prime Minister David Cameron’s government.
Cameron’s big idea when he campaigned in 2009 and 2010 was to reassure global bond investors with promises of big cuts in spending that spared only the National Health Service and foreign aid, while raising the value-added tax on sales. Smaller deficits would lower interest rates, allowing businesses to borrow, invest, and hire. Interest rates fell, as promised, but growth never picked up because consumers remained overindebted, the banking sector was undercapitalized and in no shape to lend, and businesses didn’t see enough demand to justify expansion. The European debt crisis, which suppressed British exports, was a factor. But so was the dampening effect of decreased government spending. Cameron envisioned a Big Society—his equivalent of compassionate conservatism—in which private charity would fill the hole left by government. That hasn’t happened, either.
Set aside for a moment the fact that a decreasing rate of growth in government spending does not represent a “big cut” — let alone “austerity.” As George Leef recently reminded us, much of the debate about government austerity is based on myth.
