Blog 2023 Malcolm Blair-Robinson

Economic Recovery in the U.K. and the U.S.

There are signs that things may be picking up both here and in the U.S., although there is a long way to go and the path will not be smooth. Something, however, is happening which makes this recovery different and much more difficult for politicians to control, both in the U.S and the U.K.. It is this. The people have turned against borrowing. In doing so they, more than their leaders, are re-structuring the economies of both countries to a different and more sustainable model. The new financial structure is going to be different. It will not be built on debt.

The implications are huge. The easy route of lavish credit  to a quick boom, which beleagured politicians could use to escape from poor fiscal policy decisions and get re-elected, is closed off. This time round economic recovery will be built on wealth creation rather than asset inflation. This will take longer and will inflict pain, but the outcome will be more robust.

The Coalition understands this better than Washington. Its policies are more Monetarist than Keynesian, but with a sweetener of liberal compassion. It refuses to reduce its cuts or make their impact less severe. It is imposing much tougher demands on regulators to end irresponsible lending, as well as cutting housing benefit. Both will reduce house prices and will have the effect, in the long term of increasing the money in the pockets of the lower earners, so they need to borrow less. Companies are looking to new investors to raise capital to expand rather than to the banks.

All of this is good news, except for the government. Sound governance will become more rewarding, but populist measures will become harder to sell. Governments never like having to explain themselves to a savvy people.

This entry was posted on Sunday, October 31st, 2010 at 2:25 pm and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.