From The New York Times: http://krugman.blogs.nytimes.com/2011/11/30/bleeding-britain/
November 30, 2011
These days, ambulance-chaser economists like yours truly have an embarrassment of riches: so much is going wrong, in so many places, that one hardly knows where to start.
But let’s spare a moment for a disaster that’s being overshadowed by the euro crisis: Britain’s experiment in austerity.
When the Cameron government came in, it was fully invested in the doctrine of expansionary austerity. Officials told everyone to read the Alesina/Ardagna paper (which is succinctly criticized by Christy Romer (pdf)), cited Ireland as a success story, and in general assured everyone that they could call the confidence fairy from the vasty deep.
Now it turns out that contractionary policy is contractionary after all. As a result, despite all the austerity, deficits remain high. So what is to be done? More austerity!
Underlying the drive for even more austerity is the belief that the underlying economic potential of the British economy has fallen sharply, and will grow only slowly from now on. But why? There’s a discussion in the Office for Budget Responsibility report, p. 54, that basically throws up its hands — hey, these things happen after financial crises, it says, and cites an IMF report (pdf).
Continue reading at: http://krugman.blogs.nytimes.com/2011/11/30/bleeding-britain/