The Hazards of Comparing U.S. and U.K. Economic Policy

Imagine a basketball game during which the contrast between two players catches your eye. John Bull, a 5’11″ guard, makes lots of three pointers but never gets a rebound. Meanwhile, his 6’10″ Cousin Sam plays power forward, grabs many rebounds but never makes a three pointer. Would you expect John Bull to become a prolific rebounder if he moved to power forward, or criticize him for making three pointers in his currently chosen position? Of course not. The two players have different characteristics and therefore shouldn’t play the same position nor be evaluated by the same metrics.

That sort of contrived comparison is one of two problems with this chart on U.S. and U.K. economic policy, which appeared on Martin Sullivan’s website and was also highlighted by Andrew Sullivan (no relation, I presume). On its face, it seems to prove that Prime Minister Cameron was foolish not to follow in President Obama’s footsteps by proposing a big stimulus package. But that simply was not a position that Britain could play. Britain’s debt situation was among the worst in the developed world, and the humiliation of an IMF bailout is still a fresh and painful memory in the country. If Cameron had engaged in even more borrowing and spending increases, the U.K. could easily, like the PIGS, have had a debt crisis leading to a loss of sovereignty. President Obama, with a reserve currency and greater popular comfort with debt in his country behind him, did what he could do and got what he wanted: A spike in growth in exchange for taking on more debt. PM Cameron did what he could do and got what he wanted: Confidence in the bond market (The U.K. is borrowing at one of the lowest rates in Europe) in exchange for austerity.

The other problem with the chart is that it leaves out a critical bit of information: Obama and Cameron were elected two years apart. Shorn of that information, the chart’s narrative resembles two roads in a yellow wood: Two people made different decisions at a critical moment and that has made all the difference. But Gordon Brown’s free-spending Labour government was in power for at least a year after the growth lines diverge, and Cameron’s austerity drive is really only hitting the state budget significantly now. The implied simple contrast is thus not so simple.

[Cross-posted at The Reality-Based Community]

Keith Humphreys

Keith Humphreys is a professor of psychiatry at Stanford University. He served as a senior policy advisor at the White House Office of National Drug Control Policy from 2009 to 2010.