Welcome to the Era of Stop-Go Austerity

Sometimes good things happen to bad ideas. Actually, it happens all the time.

Britain’s election results came as a surprise, but they were consistent with the general proposition that elections hinge not on an incumbent’s overall record, but on whether things are improving in the six months or so before the vote. Prime Minister David Cameron and company imposed austerity for a couple of years – and then they paused, and the economy picked up enough during the lull so that they could make the same mistakes all over again.

They’ll probably seize that chance. And given the continuing weakness of Britain’s fundamentals – high household debt, a soaring trade deficit, etc. – there’s a good chance that the resumption of austerity will usher in another era of stagnation. In other words, the recovery of 2013-2015, which is falsely viewed as a vindication of austerity, is likely to prove self-defeating.

There’s a somewhat similar problem in the eurozone, as Barry Eichengreen, an economist at the University of California, Berkeley, noted recently. There, too, growth has picked up, thanks to quantitative easing, a weaker euro and a pause in austerity. The policies that pulled Europe back from the brink were made politically possible by fear – first of collapse, then of deflation. But as the fear abates, so does pressure to change Europe’s ways; austerians are already claiming the pickup as vindication, not of European Central Bank President Mario Draghi’s activism, but of the policies that made that activism necessary.

Obviously, my pessimism could be all wrong. If the private sector in Britain or in the eurozone has more oomph that I think, growth will continue, even with policy backsliding. But my guess is that we’re looking at an era of stop-go austerity, in which politicians who refuse to learn the right lessons from history doom their citizens to repeat it.