Does Britain's Bold Economic Plan Make Any Sense?

American conservatives complain about government spending and then they continue to expand government (see: Reagan defense spending, Bush II). British conservatives complain about government spending and then they actually slash spending (see: this plan to eliminate half a million government jobs in four years).

And that's why Peter Beinart loves British conservatives: "Why don't Dick Armey, Sarah Palin, and Glenn Beck invite David Cameron over for a trans-Atlantic visit? They can take him out to Boston Harbor and he can teach them how to dump tea."

Let us praise David Cameron for having the courage of his convictions, but are those convictions any good? Does it make sense for Great Britain to pursue aggressive austerity at a time when interest rates are this low?

Paul Krugman answers, you'll be shocked to hear, in the negative:

Fiscal austerity will depress the economy further unless it can be offset by a fall in interest rates. Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation's fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax...

The British government's plan is bold, say the pundits -- and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers -- the equivalent of almost three million layoffs in the United States -- at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn't at all ready to take up the slack.

I'll say two things. First, this provides something historically unique: an international comparison between similarly sick economies trying to cure themselves with opposite treatments. The United States and Britain are both wealthy countries. We both suffered a credit crisis that started in the financial sector and bled into the general economy. In both cases, the private debt of the financial system became the public debt of the government, and as a result, we are both running deficits around 10 percent of GDP (Britain's deficit is the highest in the world, after Greece). But whereas the United States is spending trillions to keep things the way they were pre-crisis, the UK is slashing jobs and pensions to create tomorrow's leaner welfare state today. Will it backfire? Maybe. We don't know.

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Second, it will be interesting to see if austerity creates a backlash in the UK the same way deficit-spending created a Tea Party in America. Slate's June Thomas asks:

Still, the unemployed are free during the day--now that it's clear that the squeaky wheel avoids the ax, is Britain going to develop a street-protest culture like that of Argentina or France? Or will the coming tax increases--the spending cuts are intended to do three-quarters of the work of reducing the deficit; tax hikes will take care of the last quarter--lead to a very different kind of British tea party?

Let the international game of Compare and Contrast begin.