It’s a pretty safe bet, though, that the country itself will still be around, in much the same form, in a decade. Where the euro area’s lack of policy consensus threatens to tear the currency union apart — a threat markets take seriously — the United States poses no similar risk of suicide (which the markets know, too).
A better analogy is found in Britain. Like the United States, Britain has been around awhile, and it isn’t going anywhere soon. Like the United States, Britain has established institutions — the Bank of England was founded in 1694 — that have been tested before.
Ezra Klein is the editor of Wonkblog and a columnist at the Washington Post, as well as a contributor to MSNBC and Bloomberg. His work focuses on domestic and economic policymaking, as well as the political system that’s constantly screwing it up. He really likes graphs, and is on Twitter, Google+ and Facebook. E-mail him here.
But unlike the United States, Britain responded to the financial crisis with a quick turn toward austerity, imposed through tax increases and spending cuts, rather than Keynesian stimulus. As a result, Britain is falling into a double-dip recession, even underperforming its rate of recovery during the Great Depression. What’s more, with the economy sinking, austerity measures aren’t producing the desired fiscal balance. Economic health depends on the nation’s debt-to-GDP ratio: When gross domestic product falls, as is happening in Britain, debt must fall even further and faster to make up the difference.
The smaller, more open British economy is also more buffeted by events in the euro area than the United States is. But as Gallagher, of the Scowcroft Group, says: “You never get perfect comparisons. You’re always approximating. The 1930s in the U.S. and the 1990s in Japan aren’t perfect examples either, but we use them to draw lessons.”
What lessons should we draw? Don’t be like Greece — that’s the easy one. The more important lesson of the euro area is that a successful currency union should also be a fiscal and political union. The United States has little to learn on that score. As for Britain, well, it’s more about relearning a lesson that some in our country seem to have forgotten: Austerity does not create growth, and it’s not something you want to try prematurely.
In a recent paper, economists Ugo Panizza and Andrea Presbitero analyzed the evidence that high levels of debt hinder a nation’s economic performance. They failed to find proof of a causal link. What did seem clear, they wrote, is that high debt can reduce growth “because high debt leads to panic and contractionary policies.” That’s essentially what’s happened in Britain. We would be wise not to let it happen here.
For previous Ezra Klein columns, go to postbusiness.com.