Sunday, March 27, 2011

U.K. vs. U.S.: Extreme Fiscal Austerity is Not the Way to Improve the Economy

Lok Sang Ho submits:

The UK economy slipped back into negative growth (0.6% q to q) in the last quarter of 2010; the US on the other hand just revised its last quarter growth upward to 3.1% (annual rate), up from the earlier estimate of 2.8%, and up from 2.6% in the third quarter.

A while ago, the OECD cut its growth forecast for the UK but praised the government's "ambitious" deficit-cutting plans. Yet, as pointed out by some observers, the c yclically adjusted UK deficit was about identical to that of the US. The US, however, has chosen not to adopt the kind of austerity measures as taken by the UK. Indeed, largely for political reasons, the tax cuts from the Bush times that were supposed to have ended were retained. In contrast, the UK raised the Value Added Tax from 17.5% to 20% on top of a 25% cut in public spending. That


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