Is Anybody Surprised that Krugman Was Wrong about U.K. Fiscal Policy?

from International Liberty by Dan Mitchell:

Allister hits the nail on the head.

…after all the rows about “slashing spending to the bone”, and following almost three years of coalition government, the state is still spending around half of national income. …it beggars belief that a government that remains so large, so bloated cannot provide much better quality services, and that we have a public debate in this country that exaggerates beyond all recognition the extent of the state’s downsizing.

But there has been some “austerity,” but only for taxpayers.

…real austerity is only biting on the tax side: total UK government revenues increased from 40.3pc of GDP in 2011 to 42.4pc in 2012, the OECD estimates. It’s getting increasingly hard for the Chancellor to extract revenues, with taxes on income and wealth falling to £194.3bn over 2012 as a whole, 2.7pc lower than in 2011, when they stood at £199.7bn, according to separate figures from the Centre for Economics and Business Research.

That last sentence, by the way, shows the Laffer Curve in action.  The supposedly Conservative government of Cameron and Osborne has raised the tax burden, yet revenues aren’t materializing.

Allister also echoes the argument of Veronique de Rugy about choosing the right kind of austerity and reining in the public sector.

Not all kinds of austerity were created equal: cutting current expenditure, such as benefits, is good for growth; but hiking taxes is bad for it… There is also lots of evidence that elevated levels of public spending and large government debts are bad for GDP; no wonder, therefore, that growth is failing to materialise.

So what’s the bottom line? Well, as Allister stated, the real problem is that government is too big and spending too much.
And until Cameron and Osborne are willing to tackle that problem, don’t expect much positive from the United Kingdom.