Krugman vs The United Kingdom

Paul Krugman has a marvelous quote from Keynes in a recent blog entry.

”But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

For those paying attention, the United Kingdom has ignored Krugman and Keynes. They have made their decision and it is to cut spending and raise taxes -- exactly the opposite of what is recommended by Keynesian economics. Prime Minister Cameron has decided to go with “conventional wisdom”. Never mind that the conventional wisdom is what got us into this mess.

Cameron Warns Britons of Austerity

”Mr. Cameron said that at more than 11 percent, Britain’s budget deficit was the largest ever faced by the country in peacetime. But he warned that the structural deficit was more worrisome. Britain owes more than $1.12 trillion, he said, and in five years will owe nearly double that if nothing is done now.”

“And in five years” I’ll be doing...what? Remember when we laughed at the Communists for their five-year plans? Perhaps some of you don’t. Let me put it in air traffic terms. Controllers can (hopefully) tell two aircraft are going to be tight long before they have to take any action to separate them. It’s all about timing. If you separate them too far ahead of time you wind up chasing your tail. The plane you just vectored now needs an altitude change for the ride -- a change that would have separated him. Separating them too early is almost as bad as waiting too long. You want to take timely action.

The United Kingdom is acting early. No one really knows if it is right or wrong. We only have our opinions. I think it’s wrong. But if you think it’s the right thing to do for America -- cutting government spending and raising taxes to pay off the deficit -- you now have a test case to watch.

One final (unoriginal) thought: Elections have consequences.

Don Brown
June 27, 2010