Posted Thursday, Jan. 26, 2012, at 12:41 PM
Jonathan Portes observes that the U.K. economy is now performing worse than it did during the Great Depression. The greatest depths of the Depression in the U.K. were more severe, but they so severely taxed the Bank of England that Britain was forced to go off the gold standard and embark upon expansionary policies. The Cameron government, by contrast, has insisted upon fiscal retrenchment despite massive demand for British sovereign debt and the recovery has flatlined.
The story of Britain in the Depression is also an interesting piece of political history. The 1929-31 collapse was presided over by the second Labor government in history. But rather than doing the sensible thing and devaluing the pound, the committed socialists of interwar Labor ironically insisted on orthodox finance. They took such an excessively skeptical view of capitalism that they simply took it for granted that panics and economic crises were incurable. Eventually Labor cracked under the strain, and a Conservative-led all-party coalition came to power and was more or less forced against its will to embrace unorthodox policy.