BRITAIN, LIKE the United States, faces a roaring inflation and a recession. In Britain, as in the United States, there's a widespread conviction that too much public spending, and too easy a habit of perpetual deficits, is one major reason for it. The difference is in the two governments' responses. President Carter, cautious and conservative, has tried desperately to avoid committing himself to any irrevocable decision. But Britain's prime minister, Mrs. Margaret Thatcher, has done exactly the opposite. When she took office nearly a year ago, she laid out a firm and explicit strategy. Since then, economic conditions have only deteriorated. Mrs. Thatcher's reaction has been characteristic. Her government presented its second budget yesterday, sharply reaffirming all the original decisions with no retreat. It goes further, extending all its commitments and projections, year by year to 1983-84 and, presumably, the next election.
The plan remains staunchly monetarist. The theory holds that if the government succeeds in restricting the growth of the money supply, the inflation rate must come down. That, if further holds, must happen before the economy can strengthen. To get the deficits down, Mrs. Thatcher has now committed herself to cut government spending progressively over each of the next four years.
That's a remarkabale pledge to make, at a time when unemployment is rising. All forecasts, including the government's, warn that the gathering recession in Britain will be severe. Previous governments of both parties would have immediately begun spending more public money to offset the drop in private demand, and protect employment. That is the Keynesian therapy that Mrs. Thatcher has discarded.
The cuts in spending are to be unconditional, her budget says, and they will continue beyond the recession even if the recovery is weak and even if unemployment goes higher than the present levels -- and stays there. That is a shocking message. It is meant to be shocking, and to signal to Britain's people that the rules of the game have now been sharply changed.
The risks to the British economy are limited. Oil revenues from the North Sea are already large, and by the mid-1980s they are going to be enormous. The oil money is the safety net undet this trapeze act. But the outcome of the trapeze act is going to have a large influence on the way governments -- and not only Britain's -- think about economic policy. The crucial questions now have much less to do with technical economics than with public psychology.Perhaps the British will see Mrs. Thatcher's budget as an invitation to investment and enterprise, as she intends. Or perhaps they will find it frightening when the traditional styles of government intervention disappear. Perhaps the budget will be received as outspoken and courageous. Or perhaps people will merely interpret it as doctrinaire rigidity. The economic effects depend wholly upon those perceptions.
Mrs. Thatcher is now completing the first year of a great experiment that is a calculated and abrupt break with four decades of British political tradition. It's too early to know whether the experiment will succeed. But if it does, there will be rising pressure to repeat it in the United States.