History doesn't offer many hard lessons on economics because in the real world there is no such thing as a control group. For instance, we don't know to what degree the stimulus failed or succeeded because we can't compare it to a world with no stimulus or more stimulus.
But sometimes, the world gives us a Valentine. The US and the UK both went through financial shocks, we both saw unemployment spike and the economy tank, we both added bank regulations, and suffered months of depressed lending and glum consumers. But after the election of Prime Minister David Cameron, the UK undertook a project of austerity while the US continued to tepidly stimulate the private economy and support our faltering states.
How are we doing? The U.S. economy is growing and inflation is under control even with scant job creation. In the UK, however, the economy shrunk in the last three months even as inflation soared, in part thanks to higher taxes under Cameron's austerity plan:
British consumer price inflation surged to double the Bank of England's target in January, official data showed on Tuesday, raising pressure on the central bank to look seriously at increasing interest rates.
Previously King has blamed above-target inflation on a succession of one-off factors, including rises in value-added tax, the depreciation of sterling and spikes in commodity prices.
I don't present this as evidence that austerity is an inherently useless idea, merely that the UK has yet to show that it works. Read the full story at CNBC.
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