Welcome to the Era of Stop-Go Austerity

British Prime Minister David Cameron won a second term this month after the Conservative Party secured a majority in Parliament. 

Sometimes good things happen to bad ideas. Actually, it happens all the time.

Britain’s election results came as a surprise, but they were consistent with the general proposition that elections hinge not on an incumbent’s overall record, but on whether things are improving in the six months or so before the vote. Prime Minister David Cameron and company imposed austerity for a couple of years – and then they paused, and the economy picked up enough during the lull so that they could make the same mistakes all over again.

They’ll probably seize that chance. And given the continuing weakness of Britain’s fundamentals – high household debt, a soaring trade deficit, etc. – there’s a good chance that the resumption of austerity will usher in another era of stagnation. In other words, the recovery of 2013-2015, which is falsely viewed as a vindication of austerity, is likely to prove self-defeating.

There’s a somewhat similar problem in the eurozone, as Barry Eichengreen, an economist at the University of California, Berkeley, noted recently.

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