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Ominous: Household spending in the U.K. is down for a second consecutive quarter, meaning that technically British consumers are back in a recession. Business investment is down, too. Overall economic growth in the first quarter was up an anemic 0.5 percent.
Britain’s unhappy experiment with austerity should be instructive for the U.S. London’s effort to eliminate its budget deficit by 2016 has entailed slashing government services to the bone. Now it’s paying the price. The abrupt withdrawal of public spending has left the economy sucking fumes.
Economics is a game of time frames. If your horizon doesn't extend beyond next quarter or even next year, one would read the argument in favour of more government spending with sympathy.
However, while the UK is suffering from slow growth on account of government austerity, it's ultimately to the country's long term benefit because today's pain means less pain servicing debt down the road.
Compare this with the Obama approach. The US is set to deliver 2.8% annualised GDP growth with massive deficit spending and no plan to trim future spending in sight. The UK, as the article states, produced .5% quarterly growth which would be annualized to 2%.
Now I ask, is that .8% of growth in exchange for increased debt servicing expense what you'd call "smart"? And while under perfect Keynsian conditions that debt would produce growth to offset the expense, those benefits are completely wiped out by real inflation. And if you think I'm wrong, compare your fuel and food bills this year with those of last year.
The UK's lesson for the US is this: take the punch. Restructure your balance sheets. Get spending under control. Your children might just not need to emigrate.
Economics is a game of time frames. If your horizon doesn't extend beyond next quarter or even next year, one would read the argument in favour of more government spending with sympathy.
To get Americans to think more than a few months ahead would, indeed, be a miracle. I won't be holding my breath waiting for that to happen.
Ominous: Household spending in the U.K. is down for a second consecutive quarter, meaning that technically British consumers are back in a recession. Business investment is down, too. Overall economic growth in the first quarter was up an anemic 0.5 percent.
Britain’s unhappy experiment with austerity should be instructive for the U.S. London’s effort to eliminate its budget deficit by 2016 has entailed slashing government services to the bone. Now it’s paying the price. The abrupt withdrawal of public spending has left the economy sucking fumes.
It is far too early to be drawing conclusions about the success or failure of the UK approach. It will take several years before that can be ascertained with any certainty.
The fundamental difference between the UK and The USA is that the USA has an enormous economic engine. That isn't firing on all cylinders at the moment.
So when both countries find themselves in a recession, with a gaping budget deficit, the US response is to stimulate the economy. Because if the economic engine can be made to run at a 100 % again, USA will outgrow the deficit.
The UK does not have that option. It doesn't have the engine size. Got nothing to do with being stupid, that option is not on the table for them. So instead they save money, and pay down their deficit. Which I think they have aimed finish off in four years time. And then they will be debt free and have far more economic freedom.
So when both countries find themselves in a recession, with a gaping budget deficit, the US response is to stimulate the economy. Because if the economic engine can be made to run at a 100 % again, USA will outgrow the deficit.
In your analogy you missed the hard-start that decreases the overall life of the engine.
You don't get something for nothing...
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Here’s What the U.S. Can Learn From the U.K.: Don’t Be Stupid
