Is the US Really More £$%*ed Up Than the UK?

With the US heading towards a government shutdown by Friday lest they feed the whole unsavoury enterprise more scraps, let's just say that the UK at least has this one over its erstwhile wayward North American insurrectionists. (As if cutting a measly $73 billion from a trillion-plus dollar deficit helps much.) I have heartily endorsed the idea of US government shutdown [1, 2]. However, another less gung-ho opinion is that of Emma Duncan, deputy editor of The Economist. In her op-ed, she says that the UK is in the least of a political-economic pickle amongst the US and EU. For, the UK political system is not geared towards inherent intractability (American "checks and balances") or making a challenging economic compromise work politically (a single currency). Although I am not entirely in agreement, there are interesting points worth mulling here.

There's the obvious reference to free lunch economics where America is buying fleeting respite from tomorrow's inevitable misery as the US authors its own demise:

America's problems are quite different. Its government has been spending freely to pump demand into the economy, and its central bank, the Fed, has been keeping interest rates at rock-bottom and printing money like there's no tomorrow. At more than three per cent a year, America's growth rate is therefore, not surprisingly, rather healthy.

It's not so much economics as politics that's gone wrong in America. Washington is being torn apart by battles between the Democrats and Republicans. They cannot agree on a budget for 2011, despite many concessions offered by the Democrats, for the Republicans are being dragged further and further Right by a fervently anti-government Tea Party wing. If the two sides cannot reach an agreement before Friday, the government will run out of money, and civil servants and suppliers will stop being paid.

Sooner or later, of course, they will agree on a budget. But that will solve the short-term difficulty, not Washington's much larger, longer-term problem. The government's massive commitments on pensions, healthcare and the like, combined with a deep American reluctance to pay taxes, mean that the country is slowly going bust. It can keep borrowing for the moment, because the dollar remains the world's favourite currency and American treasury bonds have long been regarded as the safest place for companies and governments to put their money, but unless America can sort out its budget problems, that won't last.

And then there's her argument of why Britain is better placed to avoid American-style unreality:

In Britain, the Government has put together what sensible people in Washington can only dream of: a plan for getting the Government's finances under control. It isn't much fun. For the public sector, it means less generous pensions and fewer jobs. For the private sector, it means less revenue and less profit. For everybody, it means higher taxes - a VAT rise in January and a National Insurance increase this month. Growth is creeping along at a rate of around 1.6 per cent. But the markets are sufficiently impressed that, although our budget deficit rivals Greece's, our borrowing costs are barely above Germany's.

Britain is doing better than either America or Europe not because our politicians are cleverer but because the way our country is run makes sensible economic management easier. America is stuck because its political system is designed to put a brake on politicians' freedom of action. Power is shared between the President and the two houses of Congress. If they disagree, there is stalemate - and, as the Republican Party hares off to the Right, they disagree more and more.

British governments, by comparison, can turn on a sixpence. Lord Hailsham, the brilliant lawyer who became a Tory Lord Chancellor, called it an "elective dictatorship". It lets prime ministers do pretty much as they like, as quickly as they like. That's not always a good thing - but it's a great advantage when dealing with a crisis.

I certainly hope she's right...