Washington DC or London – whose economic approach would you chose? | FirstRain

Washington DC or London – whose economic approach would you chose?

There’s an old adage that the UK economy is tied more closely to the US than to “the Continent” – one of the many arguments used to justify keeping the Pound separate from the Euro. But over the past few months we have witnessed a strong divergence in policy to deal with the continuing gloomy forecast.

Newly elected, David Cameron has set out the harshest program of spending cuts since WWII to try to deal with the long term impact of the recession on the UK, and in an opposite approach Ben Bernanke and the Obama administration are trying to spend their way out of the problem – for now.

Maybe this difference in approach is deeply cultural. The British (me included) are good at being tough, dealing with hard times for Queen and Country. With budget cuts being pushed through at record speed, some Labours believe it endangers the recovery of the country and reduces prospects for employment in the short term, and for prosperity in the longer term. This cost-cutting plan mainly impacts the bottom half of the income distribution (although the Royal Family will see a 14% decrease), drastically cutting welfare payments and government programs, but it’s a necessary evil according to the Conservatives.

Americans (me included) are endlessly optimistic. Even if we are running up record debts and many states are bankrupt Obama ran on Hope and he’s not going to back down from the optimistic view of the future even as he moves closer to the middle and Reaganism.

Although the US markets are up, neither approach is pulling their economy out fast enough for the record unemployment.  Austerity or spending – neither is working well yet.

Where there is commonality and spending is in the green movement – hoping to save significant amounts of money on future energy consumption. The UK has invested in wind farms to provide a cleaner, greener, secure energy source to the country. In both countries the investment in going green is a spend that can create jobs and show a path forward. The US will spend up to $550 billion on green technology this year.

Or consider cosmetic surgery – clearly another area individual Americans continue to spend. Amazingly the number of Americans voluntarily going under the knife for cosmetic surgery has grown 5% in the last year. Is this because individuals feel a need to cheer themselves up in a down time (or could it be that this is a rising trend that is outpacing any ups and downs in the economy)?

Neither country is on the road to recovery just yet. Spend or save? Dour and tough or endlessly optimistic? Hard to tell yet but having lived through Thatcher’s England I’d bet on austerity paying off in the long run.