Back to the Thirties? Now It’s Britain’s Turn.

For the past year and a half, I have been in the unusual (for me) position of being relatively optimistic about the U.S. and the global football jersey economy. While Nouriel Roubini and other pessimists banged on about a W- or L-shaped recession, I was reasonably confident that the extraordinary policy response to the financial crisis of 2008—bank bailouts, near-zero interest rates, and sizable stimulus programs—would be sufficient to turn things around. So it proved. The U.S. economy is about to end a fourth straight quarter of growth, and, according to the O.E.C.D., the global economy will expand by more than four and half per cent this year. Given the internal momentum that capitalist economies possess, the prospects should be for more growth next year and beyond. Now, though, I am not so sure.

Tomorrow, George Osborne, the new British Finance Minister, will reprise the role of Philip Snowden, one of his most notorious predecessors, embarking on a program of soccer uniforms fiscal retrenchment during a global economic downturn. In 1931, with more than two million Britons out of work, and with the international financial system tottering, Snowden tried to cut unemployment benefits in order to bring down the budget deficit. In the ensuing row (several ministers refused to back the cuts), the Labour government collapsed, and the Prime Minister, Ramsay MacDonald, formed a national coalition that enacted Snowden’s measures, only to see the economy get worse—much worse.

Snowden was the political mouthpiece for the traditional “Treasury view” that deficit reduction trumps all, even in a recession. Following the 1936 publication of Keynes’s “The General Theory of Employment, Interest and Money,” which provided a theoretical justification for debt-financed stimulus programs, this doctrine was supposedly relegated to the history books, but, three-quarters of a century on, it is back. And Britain is far from alone in shifting from stimulus to deficit-reduction. In the past few weeks, Germany and Japan, two of the four biggest economies in the world, have set out in soccer jerseys a similar direction. Here in the United States, the $786-billion Obama stimulus program is still in effect, but there appears to be little prospect of its being extended or enlarged.