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Misconceiving British Austerity

LONDON – Was the British government’s decision to embrace austerity in the wake of the global financial crisis the right policy, after all? Yes, claims the economist Kenneth Rogoff in a much-discussed recent commentary. Rogoff argues that while, in hindsight, the government should have borrowed more, at the time there was a real danger that Britain would go the way of Greece. So Chancellor of the Exchequer George Osborne turns out, on this view, to be a hero of global finance.

To show that there was a real threat of capital flight, Rogoff uses historical cases to demonstrate that the United Kingdom’s credit performance has been far from credible. He mentions the 1932 default on its World War I debt owed to the United States, the debts accumulated after World War II, and the UK’s “serial dependence on International Monetary Fund bailouts from the mid-1950’s until the mid-1970’s.”