And now for something completely different — actually just a quick note. The always interesting Izabella Kaminska points us to a study suggesting that Britain’s output gap — the difference between real GDP and the economy’s capacity — is much bigger than the official estimates. This is actually a theme I’ve heard from a number of people.

Why might we think this? The official estimates assume that Britain’s productive capacity — not just the actual level of output, but the economy’s potential — took a huge hit from the financial crisis. It’s never been clear why this should be so.

And here’s the thing: if British capacity is a lot bigger than estimated, everything people say about fiscal policy, in particular, is wrong. The structural budget deficit is much smaller than claimed, as is the need for adjustment. The case for austerity is also weaker, and the costs of austerity in keeping the economy depressed are much larger.

More about this when I have time, maybe later today.