U.S. Should Follow U.K.'s Lead

U.S. Should Follow U.K.'s Lead

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There is a global fiscal crisis going on, yet some people seem not to have noticed. Governments worldwide have gotten into the nasty habit of spending much more money than they have. This has resulted in huge budget deficits and rising levels of sovereign debt. 

Some governments are finally waking up to the problem and attempting to do something about it. The United Kingdom just reached what appears to be an obvious conclusion. Its government decided it must stop spending so much money. The government came up with a plan that would eliminate half a million public sector jobs, increase the eligibility age of retirement for public pensions, and reduce welfare spending by almost $30 billion. All in all, the U.K. government is proposing to cut spending by $127 billion over four years. Some are calling this an austerity plan. I call it common sense.

On the other side of the Atlantic, the United States government seems to have been possessed by the ghost of John Maynard Keynes. Obama’s minions are convinced that the best way to solve a similar fiscal crisis in this country is to spend even more money. They hope that increased spending will somehow kick start the U.S. economy. Never mind that the economy has been kicked pretty hard already without showing much sign of starting. I doubt that even Keynes himself would advocate this kind of spending when deficit and debt levels are so immense.

To put the U.K. plan into perspective, $127 billion equates to about 6 percent of that country’s GDP. Equivalent spending cuts in the U.S. would amount to about $850 billion. Reducing government spending by that much in four years would go a long way to help bring the $1 trillion-plus U.S. budget deficit under control. Of course, there is no doubt that spending cuts that large would be painful. They would require laying off large numbers of federal, state, and local government employees. They would also require increasing the retirement age for Social Security. Yet these are the kinds of initiatives that virtually no American politician is willing to adopt. Instead of facing our problem head on and taking the difficult and necessary steps to solve them now, our politicians would rather kick the can down the road to the next generation. They would rather dole out more money to their favored constituencies and threaten to tax the rich even more.

George Osborne, the U.K.’s Chancellor of the Exchequer, told Parliament, “Today’s the day when Britain steps back from the brink, when we confront the bills from a decade of debt.” Is it too much to ask for American politicians to have the same kind of backbone to keep us from falling into the brink?

Vahan Janjigian is chief investment officer at Greenwich Wealth Management LLC and editor of the Forbes Special Situation Survey investment newsletter.