Austerity or prosperity?

With the UK economy experiencing a double-dip recession, more questions are now being asked about the merits of the Chancellor's view that there is no alternative to the current austerity plan. The package of spending cuts and tax rises introduced to tackle the deficit over the last two years represent the tightest five-year squeeze on public service spending since the Second World War. UK public spending is projected to be lower than the US's as a percentage of gross domestic product (GDP) by 2015. The UK government's austerity measures aim, by 2015/16, to eliminate the deficit altogether, and to ensure that public sector debt has started to fall from its projected peak of 70.9% of GDP in 2013/14.

And yet what the UK and the US face today more closely resembles a ‘lost decade’ than a ‘burst bubble’. The proposed austerity measures fail to capture this truth. Even if cuts did return our economies to growth – and there is little sign of a private sector-led recovery at present – there is scant evidence that recovery alone will address the long-term squeeze in living standards being felt by low-earning households on both sides of the Atlantic.

While newly elected leaders in France and Greece are setting out alternative economic plans for the eurozone countries, turning away from strict adherence to deficit reduction, the UK is not alone in its focus on austerity. Indeed, it has become the primary framework by which congressional leaders are considering both short-term and long-term plans for the US's economic future. Despite the failure of the bipartisan Joint Select Committee to reach agreement at the end of 2011 on a final package of austerity measures, Democrats and Republicans alike have accepted the need to take US$4 trillion out of the deficit over the next decade. The issue is how to do this fairly and sustainably, and who should shoulder the burden of the pain from such draconian cuts.

Much of the debate in the US to date has focused on non-military discretionary spending – the money we spend on education, green energy, national parks, transport and so on.