Austerity cuts

Here is an interesting post concerning the government’s austerity cuts. It answers the question of how, in the face of reduced government spending, the Office for Budget Responsibility can still predict output growth. It expects the private sector to take up the slack. But this is not a story of dynamic private sector entrepreneurs. It is a story of household spending. It expects private sector debt to grow enormously over the next two years. That is, despite squeezed incomes, the recovery relies on household keeping their spending going, and hence borrowing more. The irony, pointed out by the article, is that it was supposed to be excessive private sector debt that caused the problem in the first place.