Facing Austerity Measures, British Economy Contracts

At a time when Americans are debating how best to reduce the deficit, we would do well to take a look at how Britain is grappling with the same problem of cutting mounting deficits. It was reported today that the British economy contracted by 0.5% in the fourth quarter of 2010, after projections showed the GDP would grow by 0.5%. The figures coming out should raise a lot of questions about how effective drastic spending cuts are for a sluggish economy. But, the British are only experiencing the onset of the austerity measures, as more of the cuts are being implemented this year.

I can’t help thinking this is one of those, ‘I told you so’ moments. Some government officials are actually attempting to find scapegoats for the shrinking economic numbers, the most popular one being the weather. Wait, what? So the economy would have been booming if it hadn’t been for that darned weather? To be fair, freezing temperatures in Britain forced some workers to stay home, but can’t these ‘brilliant’ economists account for probably the single most predictable event – the changing of seasons? Apparently not.

Americans should be looking for reactions from House Republicans, as they proposed very similar cuts to our own government last week. The thinking goes that as public expenditures are cut, the private sector will fill in the vacuum. But the private sector has shown extreme weariness in filling in that vacuum, even though GDP figures have been inching up since 2009. Today’s report should leave us even more skeptical of the belief that the private sector will save the day.

Some economists, like Paul Krugman and Joseph Stiglitz, have warned us that if we don’t invest enough money in growth-oriented government services (transportation, construction, manufacturing, utilities, research, etc) then we could very well see a double-dip recession. If the sluggish figures being churned out of the Britain are in fact not due to the weather, and are the beginnings of another recession, then they will likely be far worse off at the end of the next quarter as more cuts are to be implemented.

Other economists are skeptical about the new numbers coming out, though. Andrew Goodwin, an economic advisor at Ernst & Young, told the NY Times today “We really do find it difficult to believe that the economy is really weak as these figures suggest.” Ernst & Young is currently being sued by the state of New York for helping Lehman Brothers cover up its demise before it collapsed in 2008.

Further Reading:

NY Times: British Economy Contracts in Fourth Quarter

Poll Analysis: Is the Tea Party Digging Their Own Grave?

Tea Party's Christine O'Donnell

Last November when Republicans took back the house, many progressives were rightfully gloomy. Our President had done much of what we asked him, passing more legislation than any other president since Lyndon Johnson. And while we knew our concerns about the economy, the environment, and the historic health care bill would take a back seat, many expressed optimism that the tea party Congress would pull the Republican Party even further away from the center.

That is exactly what is happening.

Four polls have been released this week showing many new revelations on what the American public thinks of the new House of Representatives. A Washington Post/ABC News poll shows that while a slim majority of Americans don’t like the health care bill, only a small minority of Americans want to fully repeal the bill. Of the Republicans who don’t support Obamacare only 1/3 of them want to repeal it in totality. On the other side, most Democrats support the health care bill – and the ones that don’t believe it didn’t go far enough towards not-for-profit health care.

The other new poll done by the NY Times/CBS News shows that while Americans favor spending cuts over tax increases, we also do not favor cuts when they involve Medicaid and Social Security. Yet that is exactly what Republicans have endorsed in their call yesterday to enact legislation that drastically reduces government spending. Republicans are now divided amongst themselves on how to move forward. About 2/3 of the House Republicans support this legislation, including all of the newly elected tea party activists, which pits them against John Boehner and the ‘old-guard’ Republicans.

Another poll released this week shows President Obama enjoying a surge of support from the American public. Now, I don’t want to jump to conclusions, because this could very well be in response to the tragic shooting in Tucson. Many Presidents enjoy short surges of support during a national crises. The poll could, however, represent the fact that the tea party is pulling Republicans far to the right just in time for the 2012 elections. So the surge is not from the national tragedy, but from independents and moderate conservatives who voted Republican last November and have now changed their mind.

The bottom line is that America’s top priority right now is jobs, and if the Republicans continue to offer incompetent solutions, the Republican victory in November may well be a boon for Democrats in 2012. Let’s look at one last poll: the top three GOP Presidential contenders for 2012. Newt Gingrich (a washed up political hack), Mitt Romney (a Mormon, and not that I care but America has never elected a non-Christian), Sarah Palin (where do I even begin?), and then there is Barack Obama, one of the most respected and admired presidents this nation has seen since probably Ronald Reagan or FDR.

I, for one, am optimistic.

Further Reading:

NY Times: Poll Finds Weariness About Cutting Entitlements

LA Times: GOP's childish opposition to health care reform

Huffington Post: Republic Study Group Issues Proposed Tax Cuts

Talking Points Memo: What Do Americans Really Think of Health Care Reform Repeal