Marshall Auerback points out that the new UK government, in arguing that fiscal austerity won’t destroy the economic recovery, is pointing — wrongly — to Canada’s experience in the 1990s. Actually, it’s even worse than Auerback says.
As he points out, Canada was able to offset the contractionary effects of fiscal austerity through increased exports to a booming US economy. What he doesn’t point out is that this export boom had a lot to do with this:
Yep, you can have fiscal austerity without contraction if you have a massive devaluation against your main trading partner. So we can have austerity without a new depression as long as all the world’s major economies devalue against … oh, wait.
For once, Canada is making the news for the wrong reasons. The United Kingdom has braced the country for cuts in government spending up to 20 percent as the new Conservative-Liberal Democrat coalition lays the groundwork for an austerity program to last the whole parliament. Their inspiration? According to The Telegraph, Prime Minister David Cameron’s administration hopes to draw lessons from the experiences of the Canadian Government of the 1990s. Before too much damage is done, we suggest they’d better re-read the history books a bit more closely.