Econbrowser: UK: Into Recession: So much for expansionary fiscal contraction in the UK. Not that that’s a surprise. The UK Office of National Statistics has just released preliminary estimates for real GDP growth in 2011Q4. The 0.8% contraction (q/q SAAR) was large than consensus, and in fact larger than the 0.6% decline forecasted by Deutsche Bank on 1/18…. In my view, this is pretty much the nail in the coffin that an expansionary fiscal contraction will occur, even in a relatively small, open economy with a flexible exchange rate (see JEC/Republicans for an exposition, and this post for a critique). Simon Wren-Lewis and Mainly Macro provides additional commentary, which I think advocates of austerity in the US would do well to heed:
The first estimate of UK growth in the last quarter of 2011 was negative. As these updated NIESR charts show, no other UK recovery has stalled in this way. Of course very little is ever certain, but we can be pretty sure that growth would have been significantly better if the current government had not imposed severe additional austerity measures beginning in 2010….
I believe we must add 2010 to a list of major macroeconomic policy errors made in the UK since the war. Like the failed monetarist experiment in the early 1980s, it is the result of a government adopting a policy which relied on a mistaken macroeconomic analysis that was not supported by the majority of academic opinion. And like that earlier failure, it will leave unemployment significantly higher than it need to have been for many years.
So, time for those in the US calling for an end to the payroll tax reduction, the reduction in food stamp programs, and cessation of stimulative monetary policies, to read a macroeconomics textbook. I suggest Greg Mankiw’s.