British deploy GOP’s economic plan, return to recession

When he became prime minister of Great Britain two years ago, Conservative Party leader David Cameron began to implement an economic strategy much different than that pursued here in the United States under President Obama.

Cameron and his chancellor of the exchequer, George Osborne, decided that Plan A was to cut cut cut. They would cut their way to economic growth by slashing government spending by more than 20 percent across the board. Other aspects of their plan may sound familiar as well. Just last month, they announced that they would be cutting the top tax rate for Britain’s richest households while raising taxes on those who collect pensions, a proposal dubbed “the granny tax” because of its impact on the elderly.

A reader of the London Telegraph posts his reaction to news that Britain's economy has fallen back into a recession.

A reader of the London Telegraph posts his reaction to news that Britain's economy has fallen back into a recession.

When “Plan A” was first announced, American conservatives saw it as a model for their own economic theories. As Fox News noted back in 2010:

“The Obama administration is showing no appetite whatsoever to do what the British are doing,” said Nile Gardiner, director of the Margaret Thatcher Center for Freedom at the conservative Heritage Foundation. But, he said, the U.S. has to “at the very least do what the British are doing” to avoid a fiscal calamity.

Gardiner said congressional Republicans will be paying close attention as they craft their agenda should they end up with a majority in either chamber come Nov. 3. “I do think what Cameron is doing is going to be seen as inspirational by many conservatives on Capitol Hill,” Gardiner said.”

Yesterday, however, the Cameron government was forced to announce that the British economy has fallen back into a recession after reporting the second consecutive quarter of negative growth, the first double-dip recession in Britain since the mid-’70s.

Unemployment in Britain is rising. And while America’s gross domestic product has rebounded and by 2011 had topped pre-recession levels, GDP in Britain today remains 4 percent below what it was in 2008.

Most important, perhaps, the primary goal of Cameron’s austerity program was to reduce Britain’s deficit up front, early in the economic recovery, under the theory that by doing so they would drive growth. Instead, the deficit has continued to grow larger despite the spending cuts because it is hard to get more revenue out of an economy that is shrinking.

Economics is a difficult field in part because it is impossible to run controlled experiments to test the efficacy of various theories. However, in Britain and the United States we have two economies and two governments that took two very different courses during the same time frame.

And as we now know, the outcomes have been very different as well.

One economy is recovering, if slowly, with people returning to work and the budget deficit falling, if again too slowly. The other economy has sunk back into recession, with more people out of work and the deficit increasing as a result.

Geoff Colvin, writing in Forbes back in November 2010, eagerly embraced the experiment, arguing that it would confirm the wisdom of Britain’s approach. As he boldly put it:

“When we have a winner, the losing side will rationalize the results, saying they don’t prove much, because the two situations were different going in, and that with a little bit of tweaking, their strategy would have prevailed. We should resolve to cut through the inevitable spin and declare a winner. Whatever the results, I’ll embrace them. But I think I know how this will turn out, and it won’t be good news for America.”

His prediction has turned out to be wrong, of course. Given that evidence, I find it hard to believe that the American people will now choose to abandon a policy that has worked in favor of a strategy that our British friends have done us the favor of proving a failure.

jobloss

– Jay Bookman

308 comments Add your comment

Tom Middleton

April 25th, 2012
5:27 pm

I used to think British conservatives were smarter than our conservatives, but now I know there’s just something in conservative DNA everywhere that keeps them from seeing anything but their own bank accounts, Mitt Romney chief among them.

I mean, how can he claim he has the economic solution for America, when as governor of Massachusetts, he took the state’s economy from 37th in job growth to 47th and $1 billion in debt by the time he left office?

And what about what he did at Bain Capital? Not only did he outsource jobs America much needed, but look at all the jobs he lost from his “creative destruction” raiding technique that took companies to bankruptcy for major profit – his!

And we want to put this man in charge of an economy already on the rebound, so we can go backwards to more of the Bush years? Talk about a double-dip recession, that would be a double-avalanche – that would take us generations to crawl out from under!

Moderate Line

April 25th, 2012
6:02 pm

His prediction has turned out to be wrong, of course. Given that evidence, I find it hard to believe that the American people will now choose to abandon a policy that has worked in favor of a strategy that our British friends have done us the favor of proving a failure.
+++
The unemployment rate in the United States is at 8.2% and the UK is at 8.4.

Seriously, ours is working?

[...] Atlanta Journal Constitution (blog) [...]

saywhat?

April 25th, 2012
7:40 pm

“The unemployment rate in the United States is at 8.2% and the UK is at 8.4.

Seriously, ours is working?”
______________________________________

The paths are crossing, heading in different direction. Our unemployment is on the way down, theirs is on the way up. To put it another way, we are about equal distances from the cliff edge. We are slowly walking away from it, they are running toward it. You want to switch places?

blahblahblah

April 26th, 2012
7:43 am

Meanwhile, Greece, Spain, Italy, Portugal have employed the Dems plan for about the last 20 years. How’s that working out?

blahblahblah

April 26th, 2012
7:47 am

This was stolen from the Wall Street Journal

Growth or austerity? That’s the choice facing Europe these days—or so the Keynesian consensus keeps saying. According to this view, which has dominated world economic councils since the 2008 crisis began, “growth” is mainly a function of government spending.

Spend more and you’re for growth, even if a country raises taxes to pay for the spending. But dare to cut spending as the Germans suggest, and you’re for austerity and thus opposed to growth.

This is a nonsense debate that misconstrues the real sources of economic prosperity and helps explain Europe’s current mess. The real debate ought to be over which policies best produce growth.

In the 1980s, the world learned (or so we thought) that the way out of the malaise of the 1970s were reforms that encourage private investment and risk-taking, labor mobility and flexibility, an end to price controls, tax rates that encouraged capital formation, and what the World Bank now broadly calls “the ease of doing business.” Amid this crisis, Europe has tried everything except these policies.

[...] here in the United States under President Obama. Cameron and his chancellor … Read more on Atlanta Journal Constitution (blog) Posted in What Is Economics | Tags: Economics, Latest, [...]

Adam

May 2nd, 2012
2:50 pm

The paths are crossing, heading in different direction. Our unemployment is on the way down, theirs is on the way up.

EXACTLY