On Oct 21, 2010, at 8:03 PM, SA wrote:
> A basic Keynesian analysis would say that Cameron-Clegg's proposed cuts will depress the British economy. On the other hand, the coalition's publicly stated view, I gather, is the standard pro-austerity position: cuts will give confidence to the markets, and somehow that will help the economy recover. My question is: what do Cameron/Clegg really believe? Do they privately accept the likelihood that the cuts will depress the economy but think they can ride it out and make gains through their bold leadership or something? Or are they true believers in austerity who expect the cuts to help and will therefore be surprised if the opposite happens?
That's a very good question. In Ian Gilmour's memoir of his time as a Thatcher advisor, Dancing With Dogma, he said that Milton Friedman had advised the Iron Lady that a monetary tightening could bring down inflation without a recession, which turned out to be nonsense. Clearly the Brits need not look any further than across the Irish Sea to see what happens when you cut the budget deeply - you get a severe recession that leaves you with a deficit as big as the one you started with. But they probably think there will be some "pain" - borne by others, many of whom vote Labour anyway - but not enough to damage the economy severely or their re-election prospects.
Doug