Paul Krugman argues that what the Brits have been doing to cut their debt is completely counterproductive. He says that austerity shrinks the economy, reducing tax revenues and increasing government debt. The British government should borrow more to spend more, to spark up the economy.
Philip Booth of the Institute of Economic Affair says the omens are good. He feels that the U.S., with its flexible economy, may weather the coming austerity better than the Brits.
“You’d expect the U.S. economy to respond pretty well when the government reduces its spending, so that private sector jobs and private sector growth replaced public sector activity pretty quickly,” says Booth.
Listen to the full programme here. Segment begins at 2.14.