U.K. Enters 'Double Dip' Recession
ROBERT SIEGEL, HOST:
The economic news from Britain is not good. According to the U.K.'s Office for National Statistics, that country is now in recession. And having just been in recession in 2008 and 2009, this counts as a double dip. As we just heard, David Cameron appeared at Prime Minister's Question Time in the House of Commons. And on the subject of recession, the prime minister faced the wrath of the opposition Labour Party leader, Ed Miliband.
ED MILLIBAND: Why doesn't he admit it? It's his catastrophic economic policy. His plan for austerity, cutting too far and too fast that has landed us back in recession.
(SOUNDBITE OF CHEERING)
DAVID CAMERON: There is not a single business organization or serious commentator, or international body that thinks these problems emerged in the last 24 months.
(SOUNDBITE OF CHEERING)
CAMERON: The debt crisis has been long in making....
SIEGEL: Prime Minister David Cameron defending himself there.
Well, now to one serious commentator, Martin Wolf of the Financial Times, who joins us from New York. Welcome back to the program.
MARTIN WOLF: A pleasure.
SIEGEL: And we should say you have been no fan of David Cameron's economic policies. But is this double dip recession, can you blame it on his policies?
WOLF: Well, first of all, I think it's very important to stress that I don't really care about double dips. The really important point is that since the third quarter of 2010, the economy has been stagnant; essentially it has ceased to grow. That's much more worrying than what has happened in two quarters. Yes, and I think he is to blame for that.
Of course, we got into the crisis for deep reasons, as he stressed many times. But the stagnation that has occurred after a reasonable recovery from a very deep recession has been due to the fiscal policy we've been following, along with some rather bad external shocks.
SIEGEL: The fiscal policy has been one of austerity - cut government spending, reduce government pay, reduce some services, try to get Britain's debt reduced and under control. Some would say, well, that's always been a long-term policy; there's going to be pain in the short-term because the payoff will be in the distance somewhere. Is there anything to that argument?
WOLF: I should add, by the way, quite a bit of it was raising taxes. In other words...
SIEGEL: Raising taxes, yes.
WOLF: One of the problems is that they've raised our value added tax which is a national sales tax. And that was inflationary and reduced real income, so it hit consumption. I think the point about this is quite simple. We obviously have to get our fiscal position back under control. It's almost impossible to do that while the private sector is deleveraging because if you try, the economy gets very, very weak and, as a result, the fiscal deficit doesn't close as fast as you hope. And that is exactly what has been happening.
SIEGEL: We heard a bit of fairly vigorous, if theatrical, debate from the House of Commons. Is there a real vigorous discussion in Britain right now of what the government's fiscal policy should be? Or David Cameron says, he's disappointed but he's standing by his austerity plan.
WOLF: Well, first of all, I think the coalition government is really stuck. They went out of their way to commit themselves to a certain fiscal path. They are clearly sticking with it. But one good piece of news is though the outcome has been far worse than they had hope for, they're not tightening even more. So they haven't been actually insane.
SIEGEL: By and large, most of business and many commentators have supported the government. And people who've taken my view are still a minority. But I feel less an outlier now than I did a couple of years ago, when I made the argument that this was going to lead to disappointment.
Just one other question. If we were on - we would say here on Main Street - on the High Street somewhere in the U.K., how would we be feeling the austerity program? What's the impact on everyday life?
WOLF: Well, obviously unemployment is quite high; now more or less at U.S. levels. Young people are finding it very, very difficult to find a job. And then, of course, lots of people who work for the public sector or depend on public benefits can expect their jobs, in the former case, and their real incomes, in the latter case, to be squeezed now year after year after year. It's not over.
And that's why I think every year, when the economy starts to feel as though it might recover, is going to knock the ground from underneath it. And so, just gets worse.
SIEGEL: Martin Wolf, chief economics commentator for the Financial Times, thank you very much for talking with us.
WOLF: It's a great pleasure, thank you very much.
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