Must-Read: Pro-Growth Liberal: Jeffrey Sachs’ Feeble Defense of David Cameron
Finally, there is output growth. In the UK, real (inflation-adjusted) GDP fell by 3.8% from the fourth quarter of 2007 to the second quarter of 2010. It then rose by 8.1% from that point until the fourth quarter of 2014. In the US, real GDP fell by 1.6% from the fourth quarter of 2007 to the second quarter of 2010, and then rose by 10.5% from then until the fourth quarter of 2014. Thus, both countries have experienced moderately high and broadly similar growth rates since May 2010, when Cameron’s government took power.
I have no idea what Paul Krugman did to tick off Jeffrey Sachs so I’ll let him speak for himself. But let’s note the fact that the real GDP in the US was a mere 8.7% higher in 2014QIV than it was in 2007QIV. That is by any measure a terrible economic performance. We should also note that real GDP in the UK has increased only 3.7% over the same period. For anyone to suggest that such a dismal economic record justifies fiscal austerity leaves me wondering where this person learned their macroeconomics.
From my perspective, the remarkable–and remarkably stupid–thing we see here is Jeffrey Sachs’s belief claim that U.S. economic performance since the second quarter of 2010 has been in any sense praiseworthy, and that a government that accomplished that is worth voting for.
And the reason that it hasn’t has been (a) extraordinary state- coupled with moderate federal-level fiscal austerity, (b) the failure of the Obama administration to use its housing-finance regulatory powers as tools of macroeconomic management, and (c) the unwillingness and perhaps inability of the Federal Reserve to take up the slack.
In the United Kingdom, the Prime Minister who possesses a majority of the House of Commons is the government: Cameron rules fiscal policy, regulatory policy, and monetary policy. Cameron bears responsibility. In the United States, since the second quarter of 2010 Obama has had no power to pass additional fiscal stimulus and no power to reshape the FOMC. Only housing regulatory policy was under his control. Obama gets to claim nearly-full responsibility for the relatively good things. But Obama has to share only a portion of the blame for the bad things.