Cameron vs. Obama

Now that David Cameron has clearly taken a different approach toward government spending than Barack Obama, what better way to settle the argument of which approach works? May the best man, and the best country, win.

This extract from today's New York Times:
In so doing, David Cameron and his coalition of Conservatives and Liberal Democrats have charted an economic course of almost savage austerity, an approach that contrasts starkly with the policies of Mr. Obama, who wrote to Mr. Cameron and other leaders last month warning against premature cuts in government spending that might drive the world into a double-dip recession.

Mr. Obama has chosen a different path for the United States, deferring the kind of sharp budget cuts now being rolled out across Europe, and at his meeting with Mr. Cameron the two leaders, in effect, agreed to disagree.

The UK government, along with a number of other European governments, are carrying out a series of spending cuts that will phase in over the next 1/2 years. As your post highlights, this contrasts with the US at a Federal level, which is still spending more and more.

I'm not sure this is an issue of "who is right". The US, at a Federal level, has no market funding issues. because the USD is the worlds reserve currency. The US therefore receives automatic funding from those countries with trade surpluses, China, Japan, various Arab states etc. So the US can spend as much as it wants, because it receives as much funding as it wants. I'm not saying it is a good thing, but it is true.

Other countries, UK included, have to fund their deficits by borrowing, but investors do not HAVE to buy the debt instruments they issue. So too much spending, will equal large deficits, that may spook potential investors in UK government bonds. UK and other European governments have to make sure they dont become the next Greece, where investor confidence is shot and they can't access debt markets. Hence the need for appropriate spending cuts to reduce a fiscally overstretched position.

So, it's not a question of right and wrong, more a question of the special reserve currency status of the USD giving the US government an added option to go wild and have other trading surplus nations foot the bill. This isn't available to other nations.

One other thought, although the US IS spending wildly at a Federal level, believe me at a state level there are plenty of spending cuts going on.

All in all, the whole financial "mess" is going to take many years to work out of, so better people stop asking when things are going to get back to "normal"...... they won't. At least not if you call the ten years prior to the credit crash "normal"

Within the USA there is a group of theorists that show Obama following "The Cloward and Piven Strategy". One can Google it to see what it exactly is. Basically, they are saying that the Obama administration is carefully orchestrating a fall in dollar value, running up deficit spending, dragging out the environmental disaster in the Gulf of Mexico and giving bail-outs to business rather than citizens to lead to the downfall of the system within the USA as we know it in order to implement a "national emergency" and dispense with civil law and elected form of government and implement his own structures and ensure his not needing to be re-elected in 2012. He will be installed for as long as he see fit to remain in office. Far fetched? Surely it is. Impossible? Not at all..........

luangtom wrote:He will be installed for as long as he see fit to remain in office. Far fetched? Surely it is. Impossible? Not at all..........

He probably calls Venezuela often to get pointers from Chavez.

I take it that this topic is not about the individuals, but about their respective "Economic policies".

luangtom wrote:Within the USA there is a group of theorists that show Obama following "The Cloward and Piven Strategy". One can Google it to see what it exactly is. Basically, they are saying that the Obama administration is carefully orchestrating a fall in dollar value, running up deficit spending, dragging out the environmental disaster in the Gulf of Mexico and giving bail-outs to business rather than citizens to lead to the downfall of the system within the USA as we know it in order to implement a "national emergency" and dispense with civil law and elected form of government and implement his own structures and ensure his not needing to be re-elected in 2012. He will be installed for as long as he see fit to remain in office. Far fetched? Surely it is. Impossible? Not at all..........

you forgot to mention that he is an alien send here to take over our world....

I was merely pointing out that Obama and Cameron are employing opposing economic strategies. Given that there's a fair share of Americans who are opposed to Obama's economic policies, I'd like to think a year down the road will give us an opportunity to see which economic policy worked best.

I've always considered economics a voodoo science (sort of like people predicting lottery numbers or currency futures). From what I read, the looong recession following the depression of the 30's was, at least partially, the result of FDRs attempts to balance the budget. Obama's priority at this point in time seems to be economic recovery, with a reduction of the budget in due time. There are naysayers on both sides of the tracks.....but I'm inclined to support Obama's policies for the time. I really didn't intend this to be a pro-Obama or pro-Cameron thread......rather to follow who's policies may be most effective at a time of economic downturn.

I'm not much of a believer in the 'science' of economics, but my economic beliefs, for what they're worth, tend toward people like Paul Krugman. At the same time, I'm watching with interest what's happening in the UK because Cameron is taking such a 180-approach to the economy as compared to Obama. Given the similarities in basic economic structure between the two countries, given the similarities in economic problems both countries are facing, perhaps the opposing policies will help settle some longstanding arguments about who is right and who is wrong about how to solve these problems.
Krugman has his own views: http://www.nytimes.com/2010/10/22/opini ... ml?_r=5&hp
It seems a given that the US will have to sooner-or-later face up to the same cuts as Cameron is taking now.....the big question seems to be: Is now the time to cut or the time to spend?
We'll see!

wynnsiensheng wrote:The UK government, along with a number of other European governments, are carrying out a series of spending cuts that will phase in over the next 1/2 years. As your post highlights, this contrasts with the US at a Federal level, which is still spending more and more.

I'm not sure this is an issue of "who is right". The US, at a Federal level, has no market funding issues. because the USD is the worlds reserve currency. The US therefore receives automatic funding from those countries with trade surpluses, China, Japan, various Arab states etc. So the US can spend as much as it wants, because it receives as much funding as it wants. I'm not saying it is a good thing, but it is true.

Other countries, UK included, have to fund their deficits by borrowing, but investors do not HAVE to buy the debt instruments they issue. So too much spending, will equal large deficits, that may spook potential investors in UK government bonds. UK and other European governments have to make sure they dont become the next Greece, where investor confidence is shot and they can't access debt markets. Hence the need for appropriate spending cuts to reduce a fiscally overstretched position.

So, it's not a question of right and wrong, more a question of the special reserve currency status of the USD giving the US government an added option to go wild and have other trading surplus nations foot the bill. This isn't available to other nations.

One other thought, although the US IS spending wildly at a Federal level, believe me at a state level there are plenty of spending cuts going on.

All in all, the whole financial "mess" is going to take many years to work out of, so better people stop asking when things are going to get back to "normal"...... they won't. At least not if you call the ten years prior to the credit crash "normal"

I agree with your position !As most think,The policies of Britain can be compared to the US and they can't for the very reasons you have pointed out!The problem facing the US is deficit interest and that their spending is misdirected.Propping up the investment banks was the wrong way to go,IMO!Money put into the banking system,should not have been used to clear debt,but should have been earmarked for business loans,both new business and expanding business to create less unemployment to keep the economy churning!Austerity programs should be instituted in the cutting of overtime in the workforce,while at the same time looking to cut wasteful spending programs(pork)!

It should not just be an issue of either or,but prudently doing both!

wynnsiensheng wrote: The US, at a Federal level, has no market funding issues. because the USD is the worlds reserve currency. The US therefore receives automatic funding from those countries with trade surpluses, China, Japan, various Arab states etc. So the US can spend as much as it wants, because it receives as much funding as it wants.

this is not true.
there is NO AUTOMATIC funding.

the chinese can stop buying us Treasury bonds

It Looks Like U.S. Government Bonds Aren't Supported By China Anymore

http://www.businessinsider.com/treasuries-arent-supported-china-anymore-20-august-2010

So your statement

So the US can spend as much as it wants, because it receives as much funding as it wants

is a partly false statement.

it should be noted that China's U.S. debt ownership has fallen to $843.7 billion in June from $938.3 billion in September 200,9 according to U.S. Treasury Department released Monday. This equates to nearly an 11% reduction by China.

the chinese are not stupid,
they are buying more gold, silver and other currencies.
by the way,
just check the charts,
China loaned the US almost a trillion US$,
but notice that Japan loaned the US also > 800 billion US$ and
the UK loaned the US > 350 billion US$


but one thing is clear:
The US economy is hopelessly indebted to the World (especially China),
the US currency is seriously debased as a result of the actions of the US government over the past century.

China has sufficient US dollars to totally render the USD as essentially worthless.
It chooses not to destroy the $$ for reasons of it’s own,

I believe that "if" the American people change directions during this mid-term election Obama and said policies will for the most part cease, IF they are held accountable to election rhetoric and the House sends an austere budget to the Senate and Obama. Obama cannot spend squat without the House first approving that. The way to cut the head off a snake is to starve it.

Lock Man wrote:I believe that "if" the American people change directions during this mid-term election Obama and said policies will for the most part cease, IF they are held accountable to election rhetoric and the House sends an austere budget to the Senate and Obama. Obama cannot spend squat without the House first approving that. The way to cut the head off a snake is to starve it.

if, if, if....
keep on dreaming

It appears that the new Nobel Economist believes that what Cameron is doing is wrong & will seriously damage the UK economy.

Nobel economist warns UK putting economy at risk

http://uk.news.yahoo.com/22/20101023/tu ... 6b408.html

If it is a tough call for the UK then I guess it is an even tougher call for the leader of the worlds' largest economy as his decisions will have farther reaching consequences than any the UK takes.
Personally (but what do I know ) I still think it is wrong for any Government to borrow more than it can realistically pay back. In the UK, especially, up until a couple of years ago the economy was pretty rosy (even if some of it was built on a house of cards ). The Government then had a responsibility to make provisions to resolve certain issues (especially around pension shortfalls) that it made no effort to do, preferring to use its funds continue to build yet a larger bureaucracy.
Before the actual cut announcements were made most Britons could see the necessity, now the reality has hit the fan they are not quite so sure...

An ICM poll for Sunday's News of the World showed 45 percent of those questioned thought the measures were unfair compared with 42 percent who considered them fair.
The number was even higher in a ComRes opinion poll in the Independent, where 59 percent thought the cuts were unfair.

I'm in no position to judge the effectiveness of either Cameron's or Obama's economic policies. I stay within my budget, and I'd expect my government to do the same. That being said, a number of economists continue to press for more spending rather than less at a time of high unemployment. Who's right?

An updated editorial from today's New York Times on Cameron's economic policy:
(http://www.nytimes.com/2011/10/15/opini ... ry.html?hp)


Editorial
Britain’s Self-Inflicted Misery
Published: October 14, 2011
For a year now, Britain’s economy has been stuck in a vicious cycle of low growth, high unemployment and fiscal austerity. But unlike Greece, which has been forced into induced recession by misguided European Union creditors, Britain has inflicted this harmful quack cure on itself.

Austerity was a deliberate ideological choice by Prime Minister David Cameron’s ruling coalition of Conservatives and Liberal Democrats, elected 17 months ago. It has failed and can be expected to keep failing. But neither party is yet prepared to acknowledge that reality and change course.

Britain’s economy has barely grown since the budget cuts began taking effect late last year. The most recent quarterly figures showed the economy flat-lining, with growth at 0.1 percent.

New figures released this week reported Britain’s highest jobless numbers in more than 15 years. Independent analysts expect unemployment — now 8.1 percent — to keep rising in the months ahead. The government has kept its promise to slash public-sector jobs — more than 100,000 have been lost in recent months. But its deficit-reduction policies have failed to revive the business confidence that was supposed to spur private-sector hiring.

Drastic public spending cuts were the wrong deficit-reduction strategy for the weakened British economy a year ago. And they are the wrong strategy for the faltering American economy today. Britain’s unhappy experience is further evidence that radical reductions in federal spending will do little but stifle economic recovery.

A few years of robust growth would go far toward making swollen federal deficits more manageable. But slashing government spending in an already stalled economy weakens anemic demand, leading to lost output and lost tax revenues. As revenues fall, deficit reduction requires longer, deeper spending cuts. Cut too far, too fast, and the result is not a balanced budget but a lost decade of no growth. That could now happen in Britain. And if the Republicans have their way, it could also happen here.

Austerity is a political ideology masquerading as an economic policy. It rests on a myth, impervious to facts, that portrays all government spending as wasteful and harmful, and unnecessary to the recovery. The real world is a lot more complicated. America has no need to repeat Mr. Cameron’s failed experiment.

I'm not trying to take sides, rather merely trying to compare economic policies. Here's the latest from Paul Krugman in today's NYT on austerity policies.

The Austerity Debacle
By PAUL KRUGMAN
Published: January 29, 2012

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

O.K., about those caveats: On one side, British unemployment was much higher in the 1930s than it is now, because the British economy was depressed — mainly thanks to an ill-advised return to the gold standard — even before the Depression struck. On the other side, Britain had a notably mild Depression compared with the United States.

Even so, surpassing the track record of the 1930s shouldn’t be a tough challenge. Haven’t we learned a lot about economic management over the last 80 years? Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”

How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further? Confidence! “I firmly believe,” declared Jean-Claude Trichet — at the time the president of the European Central Bank, and a strong advocate of the doctrine of expansionary austerity — “that in the current circumstances confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.”

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Which is not to say that all is well with U.S. policy. True, the federal government has avoided all-out austerity. But state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out — and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.

And we may get tipped in the wrong direction by Continental Europe, where austerity policies are having the same effect as in Britain, with many signs pointing to recession this year.

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.