Austerity Politics, Then and Now

Britain’s recently announced policy of fiscal consolidation has sent shock waves around the world, with Keynesian critics piling up analogies to the Great Depression. But the critics get their history wrong: fiscal tightening in 1931 was the only viable response to financial markets' abrupt loss of confidence in government debt - a lesson that the British government has not forgotten.

PRINCETON – Britain’s policy of fiscal consolidation, recently announced by Chancellor of the Exchequer George Osborne, sent shock waves around the world. Osborne argued that Britain was on the brink: that there was no alternative to his policy if the country was to avoid a massive crisis of confidence.