Austerity vs. Stimulus Again

In a (perhaps futile) effort to get past my confirmation bias on economic theory, I've been tracking the relative outcomes associated with western countries that instituted austerity vs stimulus measures. A few months back I was pointed to an article questioning whether the UK had actually done austerity. I was wondering about that in light of this, a news item reporting that the UK is officially in recession again. I searched a bit to see whether I could find whether the country had actually instituted austerity.

So has the UK cut spending in an attempt to balance their budget and promote growth? Yes:

At the start of its term in 2010, the Conservative-Liberal Democrat coalition government has announced the biggest cuts in state spending since World War II.

Savings are estimated at about £83bn are to be made over four years. The plan is to cut 490,000 public sector jobs. Most Whitehall departments face budget cuts of 19% on average. The retirement age is to rise from 65 to 66 by 2020.

The budget deficit is about 10% of GDP and unemployment - officially 2.67 million (8.4%) - is at its highest level since 1994.

In the 2012 budget, Chancellor George Osborne announced several measures to ease taxes - including a 5% cut to the top rate of tax and a rise in the personal income tax allowance threshold.

However, he also cut the personal income tax allowance pensioners receive, reduced child benefit and raised taxes on tobacco and other items.

Public anger over the cuts has grown. More than 250,000 people demonstrated in London in March 2011 - the city's biggest protest since the 2003 Iraq war.

Protest camps sprang up in cities across the UK towards the end of 2011, echoing similar "occupy" sit-ins around the world.

Now maybe there's another way to look at the UK's government spending; maybe they didn't really do austerity like this piece says. But if not, this is a strong data point for Keynesian formulations. The UK is a great example to counterpose with the US because over there austerity was not required by anyone (as in Spain or Ireland, where the ECB gave them no choice), and of course the UK has its own currency like the US so monetary options are on the table unlike in the EU.

It's not a perfect comparison of course- for one thing, the US hasn't continued to do stimulus and has endured severe government spending cuts at the state and local levels- but it's still worth watching.