Is it the VAT?
A commenter ‘Alex’ over at Interfluidity directs me towards Paul Krugman, debunking the idea that the UK inflation has been worse than the US when you take into account the change in VAT. Here is the graph Krugman shows:
What you have to remember is we initially cut VAT before we increased it (and had stimulus before we had austerity). And so you can see my point about how to interpret the recession as a whole. Many thanks to all those who have made comments and provided links about debt dynamics. I will read, ponder and get back to you. But for now I’m sticking to my contention that (given tracking NGDP with the US) the UK experienced a real as well as a nominal shock. As Steve Waldman has pointed out in the comments
below at my previous post, the effect this would have on real wages would exacerbate the problems caused by a desire to deleverage on the part of UK households, and of course these two stories are not mutually exclusive.
*File under: Department of Yikes