Martin Wolf: Osborne has now been proved wrong on austerity:
Nobody thought a recovery would never happen--merely that it would be delayed. "The UK economy is recovering. The government is vindicated. Its critics should crawl into a hole." This, in essence, is what George Osborne, the chancellor…. Performance since Mr Osborne took office in May 2010 has been dismal. Over three years, the economy has grown by a cumulative total of 2.2 per cent. In June 2010 the Office for Budget Responsibility forecast that the economy would expand by 8.2 per cent between 2010 and 2013… the slowest British recovery on record…. Spencer Dale and James Talbot of the Bank of England have shown that UK performance is dismal even by the standards of other crisis-hit, high-income economies…. Mr Osborne responds that fiscal policy did not cause the dismal underperformance. That was due to inflation shocks and the eurozone. Since Mr Osborne was a cheerleader for the eurozone’s austerity, he cannot wash his hands of all blame.
But the more important point, as Simon Wren-Lewis of Oxford university has pointed out, is that the debate is not about what caused the unforecast slowdown. What matters is whether the economy has been weaker with austerity than without it. Little doubt exists over the answer to this question. With interest rates at the zero bound, austerity weakened the economy relative to what might otherwise have happened. The question is only how much it has done so. It is impossible to know counterfactuals. But Oscar Jordà and Alan Taylor of the University of California, Davis, concluded that in 2013 UK GDP will be about 3 per cent smaller than it would otherwise have been.