The approach to the ‘cliff’. 
As the charts indicate the two economies were progressing smoothly along a stable NGDP growth path, with the UK showing even greater stability. Both fell from the cliff at same time, with the plunge being synchronized, just like the diving pairs from the cliffs in Acapulco! 
The UK has ended up going deeper and that´s usually (think Krugman) put down to ‘austerity’. As the next charts indicate, ‘austerity’ (measured by the fall in government purchases) has been even greater in the US, but note that real growth in the US has remained stable and quite a bit stronger than in the UK. 
Why? One possible answer, illustrated below, is that monetary policy has been ‘easier’ in the US than in the UK, where the monetary policy stance is gauged by the growth in nominal spending (NGDP). 
Hopefully Mark Carney will reverse the spending trend!
Update: Mark Carney hasn´t (yet) lived up to expectations. And the austerity debate rages on.
Update: Scott has a new chapter brought up by Mark Sadowski.
Historinhas 
Fortunately Bernanke has ignored the inflation hawks.
Up to a point.
Very true.
Does Carney’s recent record in Canada inspire confidence about what he is likely to do for the UK?
As i showed here:
https://thefaintofheart.wordpress.com/2013/05/16/canada-australia-both-commodity-exporters-but-different-outcomes/
it doesn´t. But at least he has talked about NGDP-LT as an alternative for Britain. At this point we can only hope!
Just listened to a Bullard speech he’s giving in Germany today. It was a reasonable defence of QE, and made a sensible suggestion to the ECB to do GDP-weighted QE.
However, he dismissed price level targeting and “its weaker cousin NGDP targeting”. He referred to this speech he gave last year, or rather a set of slides and charts. Did you or any other Market Monetarist respond to his critique of NGDP targeting for failing to incorporate what he called the “Reinhart-Rogoff effect”? It looks really weak, and effectively says you need to ignore the shocks.
Click to access BullardNotreDame20September2012Final.pdf
James. I did respond to his presentation from last year:
https://thefaintofheart.wordpress.com/2012/10/06/bullard-defends-price-level-targeting-unfortunately-its-the-wrong-price-level-even-the-wrong-target-altogether/
“However, he dismissed price level targeting and “its weaker cousin NGDP targeting”.”
I think you’re completely misreading Bullard. Bullard is a huge fan of Price Level Targeting (PLT). In his Frankfurt-Am-Mein speech he refers to Michael Woodford’s “Interest and Prices” (2003) as evidence that New Keynesian literature suggests that optimal monetary policy can be characterized by PLT:
Click to access BullardIMFSDistinguishedLecture21May2013Final.pdf
His Notre Dame speech last fall argued we already were on a PLT, so essentially, mission accomplished. (Woohoo!)
Bullard has a history of citing references that don’t really support his arguments. In this particular case Bullard ignores the fact that a whole decade has passed since Woodford wrote “Interest and Prices”. Woodford now believes that optimal monetary policy can be characterized by an Output Gap Adjusted Price Level Target (OGAPLT):
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/15/michael-woodford-i-personally-would-have-gone-further-but-what-the-fed-did-is-definitely-a-step-in-the-right-direction/
But since a OGAPLT may be too complicated to implement, the next best thing is NGDPLT (at the very least, it’s a whole letter shorter).
Bullard evidently is hoping his audience is totally oblivious to the fact that Woodford very publicly endorsed NGDPLT in his Jackson Hole speech.
In the interests of consistency, a relatively minor nitpick concerning the data.
“Government purchases” is evidently “Final consumption expenditure of general government” for the U.K. and is “Government consumption expenditures and gross investment” for the U.S.
The difference is that “Final consumption expenditure of the general government” doesn’t include government investment and “Government consumption expenditures and gross investment” obviously does.
It’s possible to compute the equivalent of “Government consumption expenditures and gross investment” for the U.K. but it requires doing the seasonal adjustment oneself (I’ve actually done it using the Census X12 feature of Eviews) as Eurostat doesn’t provide seasonally adjusted figures for those components. (I don’t know if the U.K.’s O.N.S. provides seasonally adjusted figures for those components, but I seriously doubt it. And besides, I personally find the U.K.’s O.N.S. to be a giant pain in the derriere.)
In any case, if one is interested in being consistent, the far simpler thing is to use the Eurostat “Final consumption expenditure of general government” data for the U.S. which shows that fiscal austerity has indeed been greater in the U.S. than in the U.K. (at least by this measure).
Mark. You are a ‘nitpicker”!!! But thanks. I didn´t think that my conclusion would risk a “Reinhart-Rogoff-type bashing”.
Here is an idea for a new blog post:
Scott Sumner and other Market Monetarists have complained about how “inflation” gets a bad rap with the general public. What Bernanke & Co. want is “more demand” and some inflation is fine because it accompanies higher real growth. But the public doesn’t get that. All they hear is “inflation” which to them means “lower purchasing power.”
Somebody needs to write a post that explains how Shinzo Abe successfully managed to get the Japanese public–which HATES inflation–to embrace it after all these years of flat prices.
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