A tale of two approaches to austerity

New data and projections from the OECD starkly portrays the differing approaches to austerity in the US and UK. The red line shows the US, the blue line shows the UK.

New data and projections from the OECD starkly portrays the differing approaches to austerity in the US and UK. The red line shows the US, the blue line shows the UK.

In 2010, the UK and US were both recovering from the global financial crisis but had fiscal balances in deficit by more than 10 per cent of GDP. After gaining office, Britain under the coalition government began an aggressive programme of cuts to public spending and tax rises.

This contributed to a deterioration in growth which fell back from 1.8 per cent in 2010 to 0.3 per cent in 2012. By contrast, the US took its time before making aggressive cuts and saw growth hold steady at around 2 per cent.

The UK’s fiscal balance has now stopped falling and is predicted by the OECD to widen from 6.5 per cent last year to 7.1 per cent this year. The US, by comparison, is expected to see its fiscal balance come down to 5.4 per cent in 2013.

Unemployment trends are also diverging. Having paid a heavy price for the recession in terms of job losses, the US unemployment rate is expected to fall to 7.5 per cent this year and 7 per cent next year. The UK’s rate meanwhile is expected to remain stubbornly at or above 7.9 per cent.

For a more detailed look at why austerity is failing and, indeed, has always failed, Mark Blyth in the current edition of Foreign Affairs is well worth a read.

5 Responses to “A tale of two approaches to austerity”

  1. Nick Reid

    1) You don’t show any evidence here that the US’s better economic performance of the last 2-3 years is because of “less aggressive cuts”. In fact the US took much the same approach to “austerity” as the UK. The issue with the US though is that whilst the Federal government put in a stimulus this was offset by the various individual state governments imposing austerity. Net-net there was no overall public sector stimulus.

    2) The OECD is actually pretty clear why the US has done better. To quote today’s Guardian:

    “The OECD heaped praise on Washington’s successful re-capitalisation of its banks, which allowed the banking system to get back on its feet and kickstart lending to households and businesses.”

    I’d also add in cheaper energy prices for domestic and business use due to shale gas. In contrast to the UK that has seen high energy prices crimp household budgets.

  2. OldLb

    Still sticking your head where the sun doesn’t shine about the debts.

    7,000 bn and rising rapidly

  3. OldLb

    And in the UK?

    QE is 375 bn
    QE bought 375 bn of Gilts
    Government spent that borrowing.

    How are they going to pay that back?

    I think the hint is they won’t. They won’t pay the QE debts..

  4. Cole

    What are you on about now?

  5. LB

    The government owes people for their pensions.

    You’re a public sector worker. Ever wonder why your pension is omitted from the government accounts?

    Here’s why. It’s too big to be paid. You are being defrauded. Not on the accounts means a future government will turn around and not pay it, blaming a previous government for fraud.

    The state pension debts went up by 734 bn a year between 2005 and 2010. A year, not over all.

    Current total spending is 722 bn a year.

    It’s your retirement laddie, pissed away on the Philpots.

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