Pearlstein: A blot on Britain's jubilee But the ghost that hangs over the British economy these days is not that of the queen but of her least favorite prime minister, Margaret Thatcher, whose stubborn refusal to budge from her program of fiscal austerity in the face of a deepening recession 30 years ago still animates the policies of her Tory successors. "The lady's not for turning," Thatcher famously declared to the Tory faithful in response to calls for a "U-turn" of her plans for budget cutting and privatization. Now, as the British economy, along with the rest of Europe, slides back into recession and financial crisis, Prime Minister David Cameron is determined to appear equally steadfast in his determination to reduce the deficit and pare back a government that had swelled to 50 percent of gross domestic product under 17 years of Labor rule. In economic terms, the austerity debate here, as in the United States, has become as silly as it is stale. With a relatively high debt level and credit markets increasingly wary, Britain probably had no choice in 2010 but to embark on a credible program to reduce a cyclically adjusted structural deficit that had grown to 6 percent of GDP. But to argue that this has now driven the British economy back into recession is an unconvincing stretch. Most of the cuts have yet to take place, fiscal stimulus this year is still in excess of 8 percent of GDP and the Bank of England has embarked on yet another round of monetary stimulus. If the recovery here has stalled, it is primarily the result of rising energy prices and the financial and economic crisis in Europe, which accounts for 60 percent of British exports. One puzzle is that even as the economic growth, as measured by GDP, seems to have stalled and the government begins to shrink, the private sector has continued to create jobs. These include low-end service jobs in London's restaurants and hotels, every one of which seems to have been filled almost exclusively with hard-working and well-spoken Eastern Europeans; blue-collar jobs in a manufacturing sector long since given up for dead; and - here's the biggest surprise - even more new jobs in a financial sector that remains the vital engine of an export-oriented cluster that includes bankers, insurers, money managers, lawyers, consultants, marketers, headhunters and even journalists. Indeed, there is a suspicion that at least some of the downturn here is a statistical mirage caused by the necessary adjustment to wages and prices following the bursting of that financial bubble. If the financial sector never really added as much genuine value to the economy as was indicated from all those inflated salaries and bonuses, then at least some of the decline in GDP since then may merely reflect a healthy repricing of labor, financial assets and goods across the economy rather than a worrisome loss of output. Low inflation, slowly rising employment, little or no growth in measured productivity, household incomes and GDP - these are all consistent with that story of statistical mirage.