A Special Note From Bonddad on the Absolute Stupidity Behind the Expansionary Austerity Movement

We've written quite a bit here about how mind-numbingly stupid the idea of austerity is.  My reasoning is simple: government spending is a component of the GDP equation (which is C+I+(X-M)+G).  This equation has been around a long time, and is a basic component of macro-econoimcs.  Under the basic concepts of math, if you lower a value in an equation that involves addition, you wind up with a lower total number on the other side of the equals sign.

In addition, we have a ton of data from the existing attempts to use this idea that it really doesn't work.  Here's a post I wrote a little bit ago titled, "this is not what socialism looks like."  In the US, government spending at the state level has been contracting for 6 of the last 8 quarters.  Guess what?  It's subtracting from overall US growth.  We're not the only country to experience this first hand: we've also see it happen in the Baltic States and Ireland.  And of course, China spent massively to avoid the effects of the recession and their economy has grown at a very strong pace, proving the point from the opposite side of the argument.  Then of course, there was the US experience during the Great Depression when we saw growth rates of around 10% for three years straight and then 5% the following year thanks to government spending.  And, as I've noted in my history projects, Korean War spending shifted the US economy into overdrive in the early 1950s (see here, here and here).

Now we have more data that shows how stupid austerity is, this time coming from England.  First, this outcome was projected to happen, as reported by Bloomberg on July 13, 2010:

U.K. Prime Minister David Cameron’s planned budget cuts increases the chance the economy will slip back into recession, said Geoffrey Dicks, who heads economic forecasting at Britain’s new fiscal watchdog.

Responding to questions during a parliamentary hearing in London today, Dicks said measures proposed in the June 22 budget led his office to shave 0.5 percentage points from its growth forecast in the “near term.” His Office for Budget Responsibility predicts an expansion of 1.2 percent in 2010.

“There are some budget measures which will have reduced demand,” Dicks told the Treasury Committee, which scrutinizes economic policy. “The near-term outlook for GDP is not as good as it was before the budget. I still don’t think that will mean a double dip, but logically the chances of that happening have increased.”

Someone in the British government knows their macro and someone doesn't.  Guess who?  From Professor Brad DeLong:

Yep. This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory.

By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again.

In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.

That is quite an accomplishment.

Reality continues to intrude rudely and sharply into the proposals of the austerity crowd. Yet, despite the overwhelming amount of data that disproves their central thesis, they continue to cry for austerity.  Obviously, facts, data and logic are meaningless now, as, despite the fact that that we have an overwhelming amount of data, we continue to hear from people who argue on the other side of them.  We are clearly through the looking glass in regards our public discourse.