Here via Tim Fernholz is a great look at comparative crisis-ology in the US and UK from Alan Taylor and Moritz Schularick. They separate out “normal” recessions and “financial crisis” recessions and offer statistical simulations of the expected path of recovery. The United States is doing pretty good relative to the bleak projection and the UK is doing terribly.
Why?
One factor is that the British economy was more specialized in financial services than the American economy, so the British have a bigger structural adjustment to make.
The other is that North Sea oil production hasn’t been doing well as a coincidental matter.
Third, David Cameron wanted as an ideological matter to conduct a structural transformation of the British economy toward producing fewer public services and more private goods and services. As a matter of economic stabilization policy, “the boom not the bust is the time for austerity at the treasury” and that’s particularly true here. If the economy’s booming, then resources released by the state sector will be rapidly reemployed in private undertakings. But amidst a weak economy it just adds a new problem into the mix.
Fourth, the Cameron/Clegg government seems to have been really sincere in its desire to pursue deficit reduction and thus paired its spending cuts with things like a substantial increase in sales taxes (VAT). If it were true that “confidence” in the government’s desire to limit borrowing was an important driver of private sector investment, this would have been a great idea. But it isn’t, so in fact it was a terrible idea.
