James Pethokoukis

Politics and policy from inside Washington

Austerity makes for bad politics

Mar 1, 2010 17:19 UTC

It looks like the Conservatives in Britain are getting worried that their emphasis on deficit reduction is hurting the party with voters. Labour seems to be catching up in the polls:

The prospect of a hung parliament frightens financial markets, which fear a minority or coalition government would shy away from tough action on the deficit, which is set to exceed 12 percent of GDP this year, a level similar to that of crisis-hit Greece.

Labour plans to halve the deficit in four years with cuts starting next year but says turning off economic stimulus taps now could derail a tentative recovery from a deep recession. The Conservatives say this is too little, too late. They pledge to make an “early start” on deficit cutting if they win power, saying delay could cause a crisis of investor confidence and push up interest rates, but they have not given any figures.

The Conservatives’ uncompromising message on the need for belt-tightening may have turned off some voters, who fear public spending cuts could lead to job losses and poorer services. “The ‘age of austerity’ is a sound bite too far,” said Tim Bale, senior lecturer in politics at Sussex University and author of a recent book on the Conservatives.

Me: A Cameron loss would surely be noted in Washington as another lesson that root-canal economics doesn’t sell. Rather than a Deficit Commission, someone should suggest a Growth Commission to recommend ways to boost long-term economic growth in a fiscally responsible way.


Spending reduction may not be popular, but focusing on growth rather than reduced spending always results in not reducing spending.

Also, politicians boosted growth by lowering mortgage lending standards. That’s how we got into this financial mess. It also keeps politicians in place as social engineers, this time responsible for allocating resources so the economy grows. This government-knows-best-politicians-as-tec hnocrat is the mindset that must be broken.

Limited gov’t will by definition keep resources in the private sector with which the people can construct their own safety nets.

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Wall Street triumphant

Mar 1, 2010 15:35 UTC

Rightly or wrongly, Wall Street is given blame for the Great Financial Meltdown — at least far more so than the Fed, US housing policy and government Too Big To Fail policy. So looking at how financial reform is coalescing in Congress, the big banks have to feel relieved. No one is being broken up, no return of Glass Steagall, the new consumer protection regulator is being continually whittled down, no super regulator. Things may have gone much differently had financial reform been more of a priority than healthcare. Wall Street’s execs may not deserve bonuses, but its lobbyists sure do.