The BBC ignored the oncoming US ‘Fiscal Cliff’ for a long time but has now got the recent deal that at least initially puts the brakes on marked down as one of Obama’s magical successes….something we in Britain, George Osborne in particular, could learn from.
However what the BBC aren’t telling us is that the deal imposes more ‘Austerity’ on the US than Osborne has imposed upon us (or should I say the Labour Party has imposed upon us?)…..
For years now, economists like Paul Krugman [mostly on the BBC!] have been criticizing countries in Europe for engaging in too much austerity during the downturn — that is, enacting tax increases and spending cuts while their economies were still weak.
But after this week’s fiscal cliff deal, the United States is now on pace to engage in about as much fiscal consolidation in 2013 as many European nations have been doing in recent years — and more than countries like Britain and Spain.
So how does the sheer scale of the U.S. austerity program for 2013 compare to what European countries have been doing over the past few years?
Britain has earned a lot of criticism for its austerity programs in the past two years. But at a total size of 1.5 and 1.6 percent of GDP, each of those two deficit-reduction years were smaller than what the United States is planning this year. The United States is also planning to cut and tax more heavily this year than Spain did in 2010 and 2011. Or France. That said, we’re nowhere near Greek or Portuguese or Irish levels of austerity.
A back-of-the-envelope calculation suggests Congress has enacted around $304 billion in tax hikes and spending cuts for the coming year, an austerity package that comes to about 1.9 percent of GDP.
Investors are right to be grateful to Congress for not plunging the US into an entirely avoidable downturn.
If the global economy is going to thrive in 2013, it needs all the forward momentum it can get from the US, especially in the first few months. US fiscal policy will tighten by about 1% of GDP this year, but that’s similar to the tightening that occurred in 2012.
It won’t tank the economy.
Note that a 1% ‘tightening’ ‘Won’t tank the economy’.
Funny how Osborne’s 1.5% fiscal tightening is presented by the BBC as the death knell of our economy.