My assessment is that the major difference between the two economies relates to the conduct of the government in each case. The UK government has been announcing its intention to impose harsh fiscal austerity on the national economy since the day it took office. The fact is that most of the spending cuts are still to come, which doesn’t augur well for 2012, the spending associated with the Olympic Games notwithstanding.
It is highly likely that the “announcement effect” by the government of its intention to harshly cut spending has further eroded confidence among households and business firms, already labouring under the deflationary burden of high unemployment.
By way of contrast, while there has been austerity rhetoric in the US, which is probably held back private spending, the unresolved nature of the current political impasse has not translated into any serious budget cuts to date. The current US regime is still talking job creation and growth, which is far removed from the rhetoric that emerges from the British government.
However, I do not want to suggest that the US government is demonstrating sound macroeconomic policy management. Rather that it hasn’t started to actively undermine private spending and overall economic growth in any major way.If the political environment changes in 2012 or perhaps 2013 after the November election, and more conservative voices gain traction in actual policy settings, then the US will follow the route taken by many of the Eurozone nations and Britain – that is, back towards recession.
The current neo-liberal mantra that governments can successfully engage in a “fiscal contraction expansion” remains in my view an ideological assertion without empirical foundation. The only successful examples of nations growing out of recession when private spending has been flat and governments engage in fiscal contraction occurs when external conditions were favourable and export growth could compensate for the loss domestic demand arising from the reduction in government deficit.
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by Bill Mitchell