StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Fall In U.K. GDP Creates Problems For U.S. GOP

25 Jan 2011
Posted by Stan Collender

Since it was announced last October, the so-called austerity program launched in the U.K. has been repeatedly cited by Republicans as an example of what the United States could and should be doing.  Spending cuts were the road to prosperity, they said, and all the U.S. had to do was emulate what the Conservative-Liberal Democrat government in the U.K. was doing.

That position took a drubbing today when GDP in the fourth quarter of 2010 in the UK was reported to have fallen by 0.5 percent.  That immediately set off political and economic alarm bells in the U.K. and raised big questions about the wisdom of an austerity program in the midst of a tepid economic recovery.  Many were saying that another quarter of falling GDP and you would be able to stick a fork in the austerity program because it would be done.

The GDP results are also a problem...and potentially a huge problem...for the GOP calls for spending cuts in the U.S.  Over the past few weeks, House Majority Leader Eric Cantor (R-VA) has repeatedly said that Republicans believe that economic activity and jobs will be created with spending cuts.  The U.K. experience now belies that claim and provides Democrats with a strong talking point in response: We want the U.S. economy to grow and the failure of the U.K. austerity program shows that what the GOP wants to do in the U.S. will cause the U.S. to fall back into a recession.

Expect Cantor and other congressional Republicans to come up with a number of creative ways to distinguish what U.K. from the U.S.  For example, I expect they say that one quarter doesn't make a trend and the fourth quarter results were more about the overspending before than the austerity afterwards.  I'm also anticipating that they'll say that the only thing the U.K. did wrong was not cut spending fast enough and that the situation would have been different had they done the equivalent of what the GOP is promising: $100 billion in spending cuts this year.

From a communications standpoint it's all very predictable.  But there's no doubt that if they have to explain why what happened in the U.K. won't happen in the U.S. -- and that will be the immediate follow-up question from reporters over the next few weeks -- the GOP will be in a defensive position and have a much weaker talking point than they had before the U.K. GDP was reported this morning.

UK GDP

Don't forget the tax increases. The Republicans will say that was the UK's mistake.


UK Budget Plan

You make some good points. The Democrats could definitely use the latest data to state that an austerity program would not work. Nevertheless, I don't think that the UK's data will be a very effective argument to use. As Michael Tracy points out, the Republicans could just point to the fact that the UK is raising taxes and place blame there.

Moreover, the Coalition government's budgetary plan is credible and has a strong potential of really reducing the budget deficit. The proposals the Republicans have put forward recently would just be a drop in the bucket. I don't think the two plans (Republican plan vs. The Coalition govt's plan) are that comparable. It will be interesting to see how the UK's GDP will be affected over the year as more of its austerity plan is implemented.


Making an incorrect assumption

There's an incorrect assumption here: that the modern GOP gives a fig about empirical data. There's a sizable body of evidence that they simply ignore any data counter to what they believe is "real"; witness their recent attacks on the CBO, their long-standing game of pretend about AGW, abstinence-only sex-ed, "Just Say No", etc etc etc.


"The U.K. experience now

"The U.K. experience now belies that claim and provides Democrats with a strong talking point in response: We want the U.S. economy to grow and the failure of the U.K. austerity program shows that what the GOP wants to do in the U.S. will cause the U.S. to fall back into a recession."

Stan, Stan, Stan. How many times do we have to do this? Like I've told you over and over, this kind of argument would make sense if we were dealing with an opposition party who was genuinely making a good-faith effort to improve the economy and with a polity that was not completely impervious to reason after decades of reality-denying right-wing propaganda. All the Republicans have to do is start shrieking about how the US is an exceptional nation and how dare the traitors of the Democratic Party compare us to the european socialist tyranny of England.


As well they should be

the GOP will be in a defensive position and have a much weaker talking point than they had before the U.K. GDP was reported this morning.

The calls to cut, cut, cut were wrong to begin with, and the outcome was entirely predictable. The time to cut, cut, cut will be once the oversupply in various sectors (housing and commercial real estate, most notably) are absorbed and consumers are done deleveraging. The GOP has no good reason to keep its original position. (Of course, the GOP will keep the position for lots of bad ones.)




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