Stimulus works. Removing it fails

Now that Fulham have been unbeaten in three games (and are back to the form of thrashing those weakling North-Western clubs like Burnley and Man Utd 3-0), I can wander my mind a little and think about more interesting subjects, like macro-economics…

When the recession started, Tories derided the government for saying that the UK was in ‘the best shape’ to enter the recession. I mean, having a debt:GDP ratio lower than all of the G8 bar Russia is apparently a bad thing. Who knew?

Germany went into recession ahead of the UK, and did so faster than us (indeed we were one of the last major nations to enter recession, and only did so because one quarter showed a 0.1% fall in GDP). Germany also ended up with a greater percentage drop in GDP before their recession ended. But yes, they did come up earlier, so the right could hail them as doing better than the UK. So it would be awfully inconvenient to Tories if the German recovery faltered.

The FT reports that the latest German GDP figures show 0.0% growth (hat tip to Hopi Sen). They are a whisker away from a fall in GDP (and certainly well within the margin of error). The ‘market’ expected a 0.2% increase. As Hopi points out, Germany took the decision to cut stimulus funding pretty quickly after they returned to growth. Tories (in their usual patriotic way) cheered that careful and thrifty Frau Merkel and derided the profligate Mr Brown (and the pattern was repeated in the US with Republicans beating Obama with the same stick) for Germany’s apparent better position a few months ago, and the way that they acted to stabilise fiscal policy as soon as recovery started. I suspect that these same cheerleaders for immediate cuts will be strangely quiet about the later wobble – and even less noisy if Germany does go into a ‘double-dip’ recession.

I hope that they don’t, by the way. Because Germany’s recovery would also help other nations in theirs, so a double-dip could affect everyone else. But my hopes are nothing against the harsh and powerful realities of economics. It seems that the right have completely forgotten the lessons of the 1930s, taught to them by Keynes after they tried to battle a recession by trying to cut government spending, and then to cut again as soon as a weak recovery started. I suppose it’s ironic that people who are ardent supporters of capitalism don’t have much of an idea of how it works, but unfortunately their simplistic thinking that equates a household budget to a national economy and a government’s Treasury is hard to argue against. Until it gets disproved the hard way.

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