George Osborne was quick out of the gates with the austerity as stimulus gambit. Which as everybody from myself to Paul Krugman predicted was going to be a flop. Osborne has been trying to save face by arguing that his government’s austerity package saved Britain from becoming Greece (the most disingenuous piece of clap trap coming from the other side of the Atlantic since Tony last spoke of the need to go to war in Iraq). The bond vigilantes are not swarming in on fully sovereign countries (i.e., those with the power to go around the bond market if they so choose; see almost any post by Bill Mitchell). Indeed, Japan has a debt to GDP of over 200% and is issuing ten year bonds with great fan fare at below 2%.
Meanwhile Cameron has been trying to save face with an alternative: namely, that it is the crisis in the Eurozone that is to blame. As Bill Mitchell points out the Eurozone was in crisis before Cameron pushed through austerity. That is to say, if the British economic recovery hinged on a buoyant Europe it was a silly plan.
Now some fair-minded reader might insist that neither Osborne or Cameron could have known that the crisis in Europe would go from bad to worse and they are therefore the victims of optimism but not stupidity. Not so. Like the Canadian Finance Minister, Osborne has been preaching austerity and public sector restructuring to all and sundry. The problem is that the austerity gambit requires that exports do the heavy lifting in terms of dragging the domestic economy up, up and away. But if all the countries that buy your imports are also trying to do the same then in the aggregate we all loose: a in an anchor cut loose.
Canada and Britain could have perhaps used austere means to jump start their domestic economies by free riding on a massive stimulus in the US and Continental Europe. Again it has been clear for some time that was not going to happen. So even if austerity could have worked its funky magic it would have been because Europe was doing stimulating fiscal stimulus.