Last week saw former President Clinton wade into the US deficit debate. With Democrats and Republicans meeting in Washington to find a way to reduce the massive US spending deficit, both sides seem divided on what course of action to take to alleviate the problem.
The US faces a period of confrontation. As Republicans push for severe, long-term cuts to government spending, Democrats favor a more cautious approach that depends on both spending cuts and higher tax revenues to reduce the deficit.
The cards seem to be stacked in favor of the Republicans. After a resounding victory in November’s Congressional elections, they are the party with the momentum. The GOP now has a majority in the House of Representatives and has closed the gap in the Senate, where the Democrats cling to a slim majority with 51 seats. The fear for most Democrats is, with all the leverage the GOP currently holds, it is only a matter of time before its economic demands are put into practice.
At almost $1.5 trillion, the deficit is gaping. And 9.2% of Americans are unemployed. As bad as these statistics sound, they could be a lot worse – and if the GOP’s policies are put into practice, they will. Although cutting the deficit is sensible, the GOP’s plan for doing so puts the entire economic recovery at risk.
Former President Bill Clinton’s intervention in the debate last week is very interesting. The parallel he drew with the British economy is correct. The current Conservative-led Government in the UK is enforcing a radical program of deficit-reducing cuts to the economy. The public sector has borne the brunt of austerity, with libraries, hospitals, children’s centers and council estates seeing their budgets slashed. Public sector workers have also been harshly targeted, with over half a million set to lose their job within a year.
What the severity of the cuts indicates is the ruling government’s effort to roll back the influence of the state. It has long been the Conservative Party’s aim to reduce the size of the state, and they now have willing backers in the Liberal Democrats, the junior partner in the coalition. Ideology is the driving force behind these stringent cuts to the public sector. This, too, is the motivation behind John Boehner and the Tea Party-dominated GOP’s plans to drastically reduce public spending the US. We are witnessing an ideologically driven assault on the state, under the cover of deficit reduction.
President Clinton is right when he says:
“...the UK is finding this out now. They adopted this big austerity budget. And there’s a good chance that economic activity will go down so much that tax revenues will be reduced even more than spending is cut and their deficit will increase.”
Chancellor of the Exchequer George Osborne and Prime Minister David Cameron (with the full support of Lib Dem leader Nick Clegg) are seeing the economic recovery in the UK stall because of their tough approach to reducing the deficit.
As President Clinton correctly states, the economy has to be fully on the road to recovery before action should be taken. The UK’s spending cuts have had a doubly negative impact on an economy where growth is already stagnant at 0.1%. Compared with the economies of Germany and France, which have shown positive growth over the past six months and longer, the UK’s economic outlook is decidedly bleak.
The mistakes of the UK government should be a warning for the US. If the GOP forces through its vision of deficit-reduction measures, the road to recovery could be long and painful. The best course of action for the US is to instill confidence in the economy through targeted, sustained investment. More government investment in the economy is the only way to heal its Republican-induced wounds.
Bill Clinton is right to warn caution when it comes to harsh austerity packages. The GOP in the US and the Conservatives in the UK should both take heed. The Comeback Kid has spoken. And yet again his message is frighteningly accurate.
Stewart Munn is a civil servant for the UK Government with specialist interest and experience in US and European politics and Middle Eastern Affairs, with special regards to Israel and Palestine. He is also studying towards an MA in public administration and global governance.
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July 27, 2011
Greg Randolph Lawson, Wikistrat, Platinum Contributor (507)
That said, not all stimulus is necessarily bad stimulus. The tragedy is that the stimulus that happened early on in the Obama Administration was very poorly constructed and had more to do with benefiting political supporters than dealing with real issues.
A military focused stimulus (as well as a degree of infrastructure) would have made sense. America's military is living on borrowed time as it is using past generation weapons while stretching the reserve forces extensively.
The new budget reality might see the US drop a carrier group, a key piece and symbol of US power. Additionally, while rising powers notably China, are beginning to embark on carrier construction and submarine construction, we are also reducing our nuclear submarine production.
Indeed, we may be thinking of knowing our nuclear "triad" to a limited "dyad." This is strategically unwise.
It also means that many jobs that could be created aren't because the present Administration is wedded to the potential of "Green Jobs."
Restraint of social spending and a solid stimulus in strategic investments is something the US needs to do and do now.