Tuesday, June 8, 2010

Looking East

With the election over and the coalition government having been formed, the Clegg-Cameron team must get to work on governing. How and what happens in Great Britain provides a contextual roadmap for the U.S in terms of dealing with debt and deficits.

John Lanchester, of The New Yorker, puts it this way in his June 7, 2010 article entitled Party Games:

At the moment, for every four pounds the government spends, one is borrowed from the markets. Those markets will want to be reassured that the government is serious about getting its finances in order. That is going to mean cuts. All three parties went through the campaign promising to halve the deficit by 2014, while being obstinately nonspecific about exactly what they would cut. But to achieve this target the cuts will have to be the sharpest that the U.K has ever seen. Not even Thatcher enacted anywhere near the level of cuts that the coalition will have to impose. It’s unclear if the country is braced for what’s about to happen. “The public has a sort of sense that there’s a problem,” Choate said [Robert Choate, the director of the Institute for Fiscal Studies]. “They’re not daft. They realize that there’s a significant adjustment to come, but they tend to think it can be solved by increasing taxes that they don’t pay and cutting spending that they don’t benefit from.”

I asked Choate how long he thought the problems would take to fix. “Unless the size of the hole turns out to be bigger than the previous government has been suggesting, getting the bulk of the job done in a Parliament looks about right,” he said. A Parliament lasts up to five years, so it is probable that the electorate that votes next time will have just undergone a half-decade of misery. People in Britain say they wanted change, and they’re going to get it, even if it’s not quite what they had in mind. There will be plenty to moan about and - - who knows? - - maybe even some complaining, too.

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