In the United States, the debate over how to cut the long-term budget deficit is just getting under way. But in Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.What did they think they were doing? Well, they thought they were battling the usual sort of recession, which is associated with high interest rates:
Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.
All of which has challenged the view of Britain’s top economic official, George Osborne, that during a time of high deficits and economic weakness, the best approach is to aggressively attack the deficit first, through rapid-fire cuts aimed at the heart of Britain’s welfare state.But, see, Britain isn't facing high interest rates, just like the US isn't facing them now. Interest rates in London are very low. In Ireland and Portugal, which really are facing high interest rates, the governments don't have much choice, and they are facing years of austerity; but Britain did not have to balance its budget now. This was a moral approach -- tighten our belts, get down to work -- to an economic problem.
The economy, as we learn yet again, doesn't give a fig for morality. Its rules are different from those of a peasant household. What the US and Britain really need now is a few years of a rapid growth and some inflation, fueled by more deficit spending. But somehow the public mood is for tough love, scrimping, saving, coupon clipping. This misguided moralism would be an interesting experiment in mass psychology, if it weren't that millions of people will remain unemployed because of it.