British and American economies: a rejoinder

Keith has turned off comments so I’ll reply to his thoughts on recent UK vs US economic performance by return of post.

If you want to compare the policies since 2008, the relevant data cover the whole period since 2008, not the last quarter of 2013 and an estimate for 2014.
Here’s the key chart, courtesy of Thomson Reuters:

It’s not a matter of debate but of fact that the British economy has underperformed the US one over the period by a substantial margin. The relative loss came to 6% of annual GDP by 2012, cumulatively around 15% of a year’s GDP. This contrasts with a slight British overperfomance previously (see the chart since 1999 on the same page), so the gap is very unlikely to have a structural explanation.

The Keynesian argument was and is that this shortfall represents a simple throwing away of at least $300 billion of potential work and output. That’s a rock-bottom minimum, as the benchmark US policy has hardly been aggressively Keynesian; for that you have to go to Australia or recent Japan. What has Britain gained from this? The bond vigilantes have been kept at bay; but then they have not appeared in either the USA or Japan, so the policy looks like elephant powder. The welfare state and local government have been trimmed, which the cynical suspect to have been the main point all along.

The austerian argument (made in good faith or not) has been that austerity forces neoliberal structural reforms that raise the long-term growth rate. So far, it’s a claim with singularly little evidence for it, far short of what would be needed to justify the widespread suffering the policy has directly caused. Germany has done better than the other eurozone countries, and had mild structural reforms in 2010. But Italy and France have suffered, and the Nordics prospered, without reforms; Spain, Greece, Ireland and Portugal have been forced to put on the hair-shirt, and Britain’s Coalition government freely chose one, in both cases to little benefit. The hair-shirt was made more bearable to élites by the fact that it was always to be worn conveniently by the poor, never by the financiers who triggered the crisis or the policymakers and pundits who enabled it.

You can trust The Economist on facts. Interpretation, not so much.

You cannot hope to bribe or twist,
Thank God, the British journalist.
But seeing what the man will do
Unbribed, there’s no occasion to.

(Humbert Wolfe)

Update: I see Kevin Drum beat me to it. But only my post has Humbert Wolfe.

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