The Confidence Fairies

or

How’s that Austerity thing working out for you again?

Crossposted from The Stars Hollow Gazette

Pain of British Fiscal Cuts Could Inform U.S. Debate

By LANDON THOMAS Jr., The New York Times

Published: April 14, 2011

(I)n Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.

Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.

All of which has challenged the view of Britain’s top economic official, George Osborne, that during a time of high deficits and economic weakness, the best approach is to aggressively attack the deficit first, through rapid-fire cuts aimed at the heart of Britain’s welfare state.

…

(T)he big worry now is not tax rates. Instead, the fear is that Mr. Osborne’s emphasis on cuts in social spending – which aim to achieve an approximate budget surplus by 2015 and are likely to result in the loss of more than 300,000 government jobs – might tip the economy back into recession.

Already the government has had to slash its growth estimate to 1.7 percent, from 2.4 percent, for this year, as consumer incomes are under pressure from high inflation, weak wage growth and stagnant economic activity.

“My view is that we are in serious danger of a double-dip recession,” said Richard Portes, an economist at the London Business School. “This is going to be a cautionary tale.”

(note: dday mines some of the same territory.)