Not Too Keynesian

In our four-year economic crisis, the U.S. has stuck with Keynesian economic stimulus while Great Britain abandoned it. According to John Maynard Keynes' biographer, Robert Skidelsky, the results are in:

Since May 2010, when U.S. and British fiscal policy diverged, the U.S. economy has grown—albeit slowly. The British economy is currently contracting. Unemployment in the United States has gone down by 1.4 percentage points; in Britain, it has gone up by 0.2 percentage points. And despite keeping up stimulus measures, the Obama administration has been more successful in reducing the government deficit—by 2.5 percentage points compared with [Chancellor of the Exchequer George] Osborne’s 1.9 percentage points.

Earlier this year, Paul Krugman wrote that “Britain . . . was supposed to be a showcase for ‘expansionary austerity,’ the notion that instead of increasing government spending to fight recessions, you should slash spending instead—and that this would lead to faster economic growth.” But, as Krugman wrote, “it turns out that . . . Britain is doing worse this time than it did during the Great Depression.”

For Keynesians, this is not surprising: By cutting its spending, the government is also cutting its income. Austerity policies have plunged most European economies (including Britain’s) into double-dip recessions. At last, opinion is starting to shift—but too slowly and too late to save the world from years of stagnation.