Books & Arts
Want to send this page or a link to a friend? Click on mail at the top of this window.
        More Books and Arts            
                  
Posted October 26, 2010
                           
nytlogo.gif (3067 bytes) ny weekinreview.gif (1173 bytes)
                
 
The British Ax, if Imported to the U.S.
 

By DAVID M. HERSZENHORN
 
With British leaders announcing sharp government cuts, French workers protesting their government's decision to raise the retirement age, and Republican Congressional candidates promising to unplug the federal A.T.M. the minute they arrive in Washington, austerity is the fall's dominant political trend.

And for Americans still furious over the weak economic recovery, the obvious question is: How much worse will things become if and when the budget guillotine falls here? Could cuts of British magnitude be in the offing?
 
british economy
 
Theoretically, the enormous United States debt - $13.7 trillion and climbing - might conjure up a bleak scenario: more than a million public employees laid off; virtually everything else in the government including the military would face cuts; social welfare safety nets torn down; research programs canceled; national parks left untended; arts and cultural institutions abandoned.

But as foreboding as the forecast may be - especially over the long term, as Social Security and Medicare are pushed to the edge of collapse - the relative economic strength and leverage of the United States mean that cuts as steep and as fast-acting as Britain's can be averted.

The gently named "spending review" announced last week by Prime Minister David Cameron and the chancellor of the exchequer, George Osborne, seeks to erase most of their nation's structural deficit within five years, effectively closing a deficit of more than 11 percent of economic output by slashing spending and raising taxes.

The British plan includes a few increases, notably for the government-run health care system. Almost all other departments would face a freeze or cuts, resulting in an average reduction of 19 percent; 490,000 public jobs would be eliminated. Even the military and support for the royal family would face reductions. The austerity program is the most drastic in Britain in 60 years, and it is difficult to envision something at the same scale in the United States. Some economists say it would also be ill-advised, because such a quick contraction of government spending by the United States would reverberate forcefully across the world economy and risk another recession.

The bipartisan fiscal commission appointed by President Obama and due to report its recommendations on Dec. 1 is working toward a much more modest goal of cutting the projected deficit for 2015 by one-third, not eliminating it, as Mr. Cameron seeks to do.

The slower approach is possible in part because the United States starts off in a stronger position. Federal government spending in the United States is a smaller percentage of gross domestic product than it is in Britain — in part because individual states are responsible for much of their own budgets and they have already made significant cuts. Britain also already taxes its citizens more heavily.

"You would usually be comfortable spreading the cuts over time," said Simon Johnson, a professor of global economics and management at M.I.T.'s Sloan School of Management. "The British are definitely front-loading."

The coalition government now ruling in Britain has also made it easier to forge political compromise over the spending plan. In the United States, similar, if slower-acting, reductions could prove politically difficult to enact in Congress and would do little to address the bigger, long-term fiscal problems, stemming from Medicare and Social Security.

Both parties have put forward proposals that pose little political risk. President Obama, in his budget, has already called for a three-year freeze on nonsecurity discretionary spending beginning this year. The House Republican leader, John A. Boehner, who would be speaker if his party wins a majority, has called for immediate cuts in nonsecurity discretionary spending to 2008 levels, totaling about $105 billion.

But discretionary spending - on things like the military, education, energy, transportation, the interior - is just one-third of the federal budget. And because nonsecurity discretionary spending is just one-quarter of that, those cuts would not make much of a dent.

Another way to tackle the deficit, of course, would be to raise taxes. Britain is increasing its value-added tax to 20 percent from 17.5 percent. Politically, however, raising taxes has become almost impossible in Congress.

The main tax debate, expected after the election, is over the expiring Bush-era tax cuts. Mr. Obama's plan, to continue the low rates only for families earning up to $250,000 and individuals earning up to $200,000, would add more than $3 trillion to the deficit. The Republican plan to extend all the cuts would add more than $4 trillion.

The real challenge for federal officials is dealing with the long-term solvency of Social Security and Medicare. The British plan would speed up an increase in the retirement age to 66 from 65. But the United States has already raised the retirement age to 66, and it is headed to 67 in 2022.

Comparisons to Britain are difficult in part because its national government controls spending in many areas, like education or policing, that are handled predominantly by the states in America. In that sense, some states might offer a preview of what the drastic cuts will look like in Britain. Because states typically cannot run deficits, they have been forced to lay off workers and cut programs.

A study by the National Governors Association found that general expenditures by states fell by more than 10 percent from 2008 to 2010.

Pennsylvania has started forcing state workers to contribute toward health insurance costs; California pushed through reductions in pension benefits and a new employee contribution requirement; Virginia imposed a hiring freeze.

"If anybody thinks it's impossible to do that kind of thing here, you have got 50 governors that have gone through a Cameron-style exercise," said an official close to the White House. "And they had to do it in two years, not five."

Copyright 2010 The New York Times Company. Reprinted from The New York Times, Week in Review, of Sunday, October 24, 2010.
                                                         
Wehaitians.com, the scholarly journal of democracy and human rights
More from wehaitians.com
Main / Columns / Books And Arts / Miscellaneous