Republican Vice-Presidential nominee Paul Ryan is putting clear blue water between his party and the Democrats in the race for the White House. His plan to take an ax to the U.S. budget deficit is very different from the Democrat approach.
But his debt-busting plan does bear a marked resemblance with the policy adopted by Britain two years ago. So what lessons can the U.S. learn from the British experience?
A Churchill Moment
Some British politicians dream of a “Churchill moment.” In a national crisis they come to the House of Commons and declare they are going to save the country from disaster. This was Finance Chief George Osborne’s Churchill moment:
“Today is the day when Britain steps back from the brink,” Osborne declared in October 2010 as he went to war on Britain’s budget deficit. “When we confront the bills from a decade of debt.”
But almost two years on the news from the front is not good. The UK’s double-dip recession deepened as the economy shrinks.The economy has stalled.
“There’s a lack of confidence which is made much worse by the spending cuts which we’ve always said have gone too far and too fast,” said opposition spokesman Ed Balls.
Ball claims that the deficit reduction has been self-defeating; the cuts have shrunk the economy, tax revenues have fallen and the deficit is widening again. A warning here perhaps for the U.S.?
But economist Andrew Hilton says the truth about Britain’s budget cutting is more complicated: “We’ve been talking a lot of cuts. We simply haven’t been making them yet,” Hilton said. “The cuts are in the pipeline. We haven’t really begun to see the deepest of those cuts.”
So just the prospect of the cuts hit confidence and helped tip the economy into recession. Why would the U.S. want to follow the British example?
“Where the U.S. can learn from the UK is that we do have a plan and the UK has earned brownie points in international markets for that,” according to Jeremy Warner of the Daily Telegraph.
And so Britain has retained its triple “A” credit rating, making it easier to borrow. Of course, the U.S. Treasury has no trouble borrowing, for now. But Warner says that a one-trillion dollar deficit will have to be tackled some day.
“You cannot keep on indefinitely clocking up public debt at this kind of rate. Something will eventually give,” Warner said. “Something eventually will have to be done about it.”
And it won’t be easy, the Brits are finding, as Churchill said on his own date with destiny: the war will involve “blood, toil, tears and sweat.”
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