Shooting yourself in the head: Britain's budget
Robert Zaller
Issue date: 11/12/10 Section: Ed-Op
It was Hippolyte Taine who remarked that the only possessions of the modern citizen were a knapsack and the national debt. This may well be the case, although military conscription is no longer a universal obligation and we prefer to fight our imperial wars now as they used to - with mercenaries and the lumpenproletariat. There has been much attention focused lately on indebtedness, however, and Britain, the nation whose fortunes I have the honor to study, has now elected the most draconian approach to it of any industrialized nation in the world. It is an experiment that will no doubt be closely watched, and which there will be little to no pressure to emulate in certain quarters elsewhere.
The new Conservative government of Prime Minister David Cameron has unveiled a program designed to cut Britain's budgetary deficit from more than 11 percent of GDP to 1 percent in five years. Eleven percent is a point or so beyond our own current deficit ratio, and a couple of points below that of Greece, which had a severe austerity regime imposed on it earlier this year by the gnomes of Zurich and Berlin. To be near Greek levels of debt sounds serious, but the Greeks actually had no crisis; rather, they were confronted by a sudden and somewhat suspect demand to meet European Union guidelines for debt to GDP ratios, backed by the threat of a credit freeze by international banks. Such a freeze did constitute a liquidity crisis, but it was a manufactured one.
Unlike Greece, the United States can't be threatened by its creditors, and its economy (like its major financial institutions) is regarded as too big to fail, at least without devastating worldwide consequences. Britain is somewhere between the U.S. and Greece, but there was no significant external pressure on it to take the measures it has now announced (and which, unlike American budgets, can be implemented without legislative approval). The most eye-catching feature of the new policy is the plan to reduce the government work force by 490,000 personnel. This will be phased in over time, at least in part by unfilled retirement vacancies. But the goal is nonetheless astonishing. If comparable cuts were adopted here, it would mean a reduction of three million jobs. Try to imagine an American administration announcing in the midst of a severe recession that it would not create but destroy that number of jobs. Such an administration would certainly be voted out of office and would lose control of Congress at the earliest opportunity. But the Cameron government doesn't have to face British voters for five years unless its hapless Liberal coalition partner deserts it. There is no sign of that yet.
The new Conservative government of Prime Minister David Cameron has unveiled a program designed to cut Britain's budgetary deficit from more than 11 percent of GDP to 1 percent in five years. Eleven percent is a point or so beyond our own current deficit ratio, and a couple of points below that of Greece, which had a severe austerity regime imposed on it earlier this year by the gnomes of Zurich and Berlin. To be near Greek levels of debt sounds serious, but the Greeks actually had no crisis; rather, they were confronted by a sudden and somewhat suspect demand to meet European Union guidelines for debt to GDP ratios, backed by the threat of a credit freeze by international banks. Such a freeze did constitute a liquidity crisis, but it was a manufactured one.
Unlike Greece, the United States can't be threatened by its creditors, and its economy (like its major financial institutions) is regarded as too big to fail, at least without devastating worldwide consequences. Britain is somewhere between the U.S. and Greece, but there was no significant external pressure on it to take the measures it has now announced (and which, unlike American budgets, can be implemented without legislative approval). The most eye-catching feature of the new policy is the plan to reduce the government work force by 490,000 personnel. This will be phased in over time, at least in part by unfilled retirement vacancies. But the goal is nonetheless astonishing. If comparable cuts were adopted here, it would mean a reduction of three million jobs. Try to imagine an American administration announcing in the midst of a severe recession that it would not create but destroy that number of jobs. Such an administration would certainly be voted out of office and would lose control of Congress at the earliest opportunity. But the Cameron government doesn't have to face British voters for five years unless its hapless Liberal coalition partner deserts it. There is no sign of that yet.
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