In response to the economic weakness of the last few years, the U.K.’s coalition government, led by Conservative Prime Minister David Cameron, has embarked on a series of spending cuts, and the opposition Labor Party seized on the contracting economy to question the wisdom of slashing spending at a time when the economy is still clearly weak. The coalition is so concerned with rebutting this narrative that it dispatched Liberal Democratic Deputy Prime Minister Nick Clegg to quell fears, but even Clegg admitted that the U.K. economic plan has had a “chilling psychological effect” on growth.
Meanwhile, back here in the U.S., House Republicans are spreading the theory that cuts in government spending will lead to economic growth and job creation. In fact, House Majority Leader Eric Cantor (R-VA) has called the GOP’s strategy that of a “cut and grow majority.” At Capital Gains and Games, Stan Collender explains how the U.K.’s experience complicates the GOP’s tale:
Over the past few weeks, House Majority Leader Eric Cantor (R-VA) has repeatedly said that Republicans believe that economic activity and jobs will be created with spending cuts. The U.K. experience now belies that claim and provides Democrats with a strong talking point in response: We want the U.S. economy to grow and the failure of the U.K. austerity program shows that what the GOP wants to do in the U.S. will cause the U.S. to fall back into a recession.
Meanwhile, the Recovery Act passed by Congress here in the U.S. boosted GDP in 2010 by between 1.5 and 4.1 percent, according to the Congressional Budget Office, while economists predict that U.S. GDP grew at 3.5 percent last quarter. Of course, the U.K. numbers are early, and there’s no telling where later revisions may take them, but its worth pausing for a moment to consider the contrast between the two nations’ fiscal responses and growth numbers.
The GOP would likely blame the U.K.’s tax increases — adopted as part of its austerity plan — for the GDP fall. However, most of them don’t come into effect until sometime in 2011. As James Meadway, Senior Economist at the New Economics Foundation, wrote regarding Cameron and co.’s cuts, “it’s a marvellous story. Our brave young prince sends the big bad ogre of state spending packing. The magic free market fairy waves her wand. Jobs, growth and the good times return. We all live happily ever after. Alas, reality is starting to look less appealing.”