President Obama's State of the Union address was full of the soaring rhetoric and accomplished oratory that we've come to expect. Aside from delivering a moving testimony on the need for gun control, and re-affirming his green credentials, a key passage on macro-economic policy is worth considering:
"Most Americans - Democrats, Republicans, and Independents - understand that we can't just cut our way to prosperity. They know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share. And that's the approach I offer tonight."
Compare this, and the rest of Obama's economic thinking in the speech, with the approach George Osborne took a few miles down the road in NYC, at the end of last year:
"I am more of a Thatcherite than a Reaganite when it comes to tax policy...I'm a fiscal conservative and I don't want to take risks with my public finances on an assumption that we are at some point in the Laffer curve. What I would say is let's see the proof in the pudding, in other words. I'm a low tax conservative, I want to reduce taxes but I basically think you have to do the hard work of reducing the cost of government to pay for those lower taxes."
As the New Statesman has it, George maintains that "tax cuts follow successful deficit reduction; they do not precede it," meaning that any partial reversal of cuts to infrastructure spending (for that is what any increase that the Chancellor loudly proclaims would in fact be) would be achieved "by squeezing current spending, limiting the effectiveness of any stimulus." Not because it will be more effective, you'll note, but because the Chancellor's blinkered dogma says it is the only course of action.
As it happens, Obama's approach has meant US GDP has surpassed its pre-crisis peak, and although areas of significant concern remain (to be revisited another time) there are signs that a new economic path is being pursued by the US. Meanwhile, the UK stagnates, a failure of imagination holding back the government from taking up the convincing case for a new approach. Whether that involves an Obama-style fiscal stimulus or more innovative use of monetary tools, it is clear we need a shift in economic thought.
Don't hold your breath though, Mr Osborne simply isn't up to the task.Suggest a correction