In the dismal science known as economics, there’s no such thing as a perfectly controlled experiment. Too many variables are at work in a real-life economy to definitively tease out the impact of any one factor.
That said, the different budgetary courses taken by Great Britain and the United States do at least offer an intriguing case study. Under their new Conservative government, the British have slashed public spending across the board, taking the direction advocated by conservative Republicans here in the United States, if not to the degree demanded by the GOP. The United States, at least so far, has taken a different course.
So if “excessive government spending” were really the problem, logic suggests that the British economy should be doing well, while the U.S. economy should be faltering. On the other hand, if government spending offers a needed short-term stimulus in these tough times, the U.S. economy should be outperforming its British counterpart.
So let’s go to our data.
“LONDON — Retail sales fell by a more-than-expected 0.8 percent in February, official data showed on Thursday, heaping fresh pressure on the government the day after it slashed its 2011 growth forecast.
Analysts had forecast a slightly smaller drop of 0.7 percent in February, according to a poll by Dow Jones Newswires.
And they said the latest data dealt a blow to government hopes of kick-starting growth of Britain’s economy, which shrank in the final quarter of 2010.
“Given that consumer spending accounts for some 65 percent of (British) GDP, any sustained weakening in spending would be very worrying for overall growth prospects,” said Howard Archer, chief European economist at research group IHS Global Insight.
Retail sales in the United States, on the other hand, have been rising. According to a March 11 report from the Census Bureau, advance estimates of U.S. retail and food services sales for February “were $387.1 billion, an increase of 1.0 percent from the previous month, and 8.9 percent above February 2010. Total sales for the December 2010 through February 2011 period were up 8.2 percent from the same period a year ago.”
The British budget cuts have been justified as necessary in order to maintain the country’s bond ratings. But that may not be working out too well either. In a new report out today, Moody’s warns that Great Britain’s weakening economy may put its AAA rating in danger.
“Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK’s sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with an AAA rating,” Moody’s said in a statement.
All such things are relative, of course. Smaller countries such as Portugal, Ireland and Greece are facing far worse woes than either Britain or the United States. And there’s no doubt that the United States faces long-term budget challenges that have to be addressed. The question is whether you try to address them immediately, in the teeth of the greatest economic recession in 80 years.
The British have taken one course; we have taken another.
– Jay Bookman