Leeches! I Must Have More Leeches!

April 25th, 2012 at 8:23 am

UK Finance Minister George Osborne after learning that the British economy has now contracted for two quarters running:

“The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”

UK GDP fell slightly over the last two quarters—0.3% in 2011q4 and 0.2% last quarter (note: the UK statisticians do not annualize their quarterly changes the way we do; annualized, UK GDP is declining at a rate of about 1% over the past six months).

Government spending, year-over-year, is at about zero now, as shown below.  It’s true that UK inflation is uncomfortable, increasing at around 3.5% over the past year.  On the other hand, their 10-year gov’t bond yield is not much higher than our own, around 2%, so just like here, markets are telling the government to eschew the bloodletting and offset the demand contraction.

But the authorities are sticking with the leeches, and this in the land of Keynes!  Wasn’t it Jung who defined insanity as doing the same thing over and over again, yet expecting different results?  The proof is left to the reader.

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6 comments in reply to "Leeches! I Must Have More Leeches!"

  1. Brian Milnes says:

    Insanity: doing the same thing over and over again and expecting different results.
    Albert Einstein

    Never quote a soft scientist when a hard one will do.

    Read more at http://www.brainyquote.com/quotes/quotes/a/alberteins133991.html#xiFmJdpK6R3cCfvR.99

  2. bestliberalwriting says:

    Excellent headline…
    Here is my attempt at quid pro quo…
    Imagine it in 50-point bold in the Daily Mail:


    Fun side note: Check out,

  3. Gene Hayward says:

    This graph shows the decline in the purchase of goods by the UK governmnent itself. Does that signal “austerity” in and of itself? If government does not buy goods directly but grants a transfer payment to individuals/businesses and they spend it on stuff does that not count as well? Should’nt we look at what has happened to total spending (direct or transfer payments) in the UK? The policy chosen to increase GDP may have failed by granting transfer payments instead of direct govt spending but to say it failed because of “austerity” seems possibly incorrect. Am I wrong? Has total spending DECREASED? Please elaborate. Thank you for your time and attention.

    • Jared Bernstein says:

      All gov’t spending, including transfers, are in here.

    • Altoid says:

      I’m not an economist, but I’ll give it a shot. A few minutes with British media do point in Jared’s direction. Guardian coverage notes that from the time Cameron came in on the pledge of austerity, UK growth has slowed. Austerity seems to have consisted mainly of tax cuts and large cuts in spending on goods & services. To the extent that transfer payments like pensions and unemployment payments changed at all, they seem to have gone up slightly.

      But the overall statistic is that GDP has been on a slightly negative trend there, and GDP is the sum of the kinds of transactions you mention. Given that the big change since Cameron’s accession has been the cutback in goods & services, I think it’s fair to point to that as a primary cause for the GDP decline. To the extent that Cameron’s budgets may also be reducing government employment, it would not show here but the negative multiplier would also figure in.

      And I think reducing support for local government was another big element in the budgets. Local government there depends to a much greater extent on central money and its spending is, I think, heavily tilted toward goods & services. And that effect would not be at all reflected in the graph, but would be in GDP.

  4. The Raven says:

    Aren’t the leeches also running the banks, and the “conservative” parties? It may be more the case that the leeches are sticking to the UK.