What America might learn from the British austerity model
The most important political news last week came from across the Atlantic, where the coalition government of British Prime Minister David Cameron ordered an austerity budget that radically reduces government spending on the welfare state. Both the policy and the political circumstances that brought it about have profound implications for the United States.
This country has wandered far -- not quite as far as Britain has -- toward the pending fiasco that threatens leftist regimes worldwide, and the reaction here in the Nov. 2 midterm elections is likely to be as painful for President Obama and the Democrats as the May 6 election was for Labor's Gordon Brown.
George Osborne, Cameron's chancellor of the exchequer, did not mince words. He told Parliament, "Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt." Britain's budget deficit, now 11.4 percent of the size of its overall economy, is not that much larger than the United States' -- 8.9 percent -- but the debate has been similar in both countries.
While the Obama administration and the Federal Reserve have chosen to stimulate economic growth by tax cuts and spending in hopes of reducing debt service, Britain has opted for the swifter, more painful gamble of increasing taxes and slashing public spending.
The budget ax was felt almost everywhere. Retirement benefits will be delayed, and hundreds of thousands of government jobs will be eliminated. Subsidies to the arts and the BBC will shrink. The value-added tax will rise from 17.5 percent to 20 percent.
As important as the policy shift from Keynesian economics is the political calculus that led the British government to these actions. The last general election produced a hung Parliament, with the Conservatives out front but short of a majority. Labor finished second and the Liberal Democrats, a reform-minded middle-class party, were third.
Britons resigned themselves to a weak minority government and early elections. But to everyone's surprise, it turned out that the right and center were ready for radical change. The leaders of the Conservatives and the Liberal Democrats discovered more agreement than they had expected -- including on the new austerity budget.
Cameron and his partners in the coalition have pushed ahead boldly, brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain's economic recovery and throw the nation back into recession.
My British friends tell me that it is only because of the two-party coalition that Cameron can take these risks. If he were dependent only on a minority Conservative Party, the risk of a public meltdown -- similar to what is happening in France -- would be too great.
The American political system virtually precludes the possibility of a coalition government. But the midterm elections provide the opportunity for a similar breakthrough.
If Republicans emerge next month with sufficient leverage in the House and Senate to approach Obama with a proposition, they could insist that he "do a Cameron" when it comes to federal spending: a radical rollback now in the welfare state in return for a two-year truce on such policy questions as repeal of the health-care law.
The vehicle could well be Obama's strong endorsement of the Dec. 1 report from his fiscal responsibility commission, which is expected to emphasize spending discipline over raising revenue. This would offer major gains to both parties, and set the stage for another experiment in the British model.