Austerity

A likely outcome of the debt negotiations is large cuts in government spending to reduce the debt burden. How would this affect the economy? Well, in fall 2010 the conservative government of the UK announced a program of austerity intended to reduce the government's debt load and restore business confidence so that businesses would start to hire and invest again (sort of what Republicans argue will happen if the US reduces spending). How's that worked out so far? See for yourself:



Caution: you never want to attribute every squiggle in the data to a single event. Lots of stuff contributes to movements in GDP. Still...