Labour: America Shows Fiscal Stimulus Works

The British shadow chancellor urged more deficit spending because it’s supposedly been such a success in America.

Echoing American president Barack Obama on Sunday, the British Labour Party’s shadow chancellor Ed Balls called for a “balanced” fiscal plan that includes a cut in consumer tax rates and increased infrastructure spending. “Austerity,” he added, “doesn’t work.”

On the BBC’s Sunday Politics program, Balls said, “Over three or four years, we would get borrowing down faster than George Osborne,” the Conservative chancellor of the exchequer, “because our plan would work. That’s what America has proved. That is what Britain would do.”

The United States have had over $1 trillion deficits for three years and the economy is showing mild growth whereas Britain is again in recession. Balls refused to say how much extra he would borrow though.

While championing austerity, Britain’s coalition government hasn’t actually reduced spending, let alone balanced the budget.

Total public-sector spending, in real terms, was almost 4 percent higher last year than it was in 2009, Labour’s final full year in power. It is projected to grow further this year, necessitating some £120 billion in borrowing and raising the nation’s debt to the equivalent of 62 percent of gross domestic product.

When the Conservatives and centrist Liberal Democrats engaged in a coalition in 2010, accountants at PricewaterhouseCoopers estimated that “Britain would have to make across the board budget cuts of 5 percent a year to come close to cutting the deficit in half by 2014.” They even assumed a slight economic upturn that hasn’t materialized due to rising energy costs, a heavier tax burden and the spiraling debt crisis in Europe.

There have been across the board cuts — which the Labour opposition believes have been “too fast” and “reckless” — but they were cuts in projected spending increases, not actual reductions in spending.

President Obama announced a “balanced” budget plan in April 2011 — after running record deficits for two years while his Democratic Party was in the majority in Congress — that included several hundreds of billions in savings while preserving financing for health care for seniors which opposition Republicans have proposed to private. The president also called for higher taxes on the wealthy while reforming the individual tax code to make it “fairer and simpler.”

In September, Obama again put out a plan (or rather, he gave a speech) in which he proposed $3 in tax increases for every dollar in spending cuts — what he called a “balanced” approach.

In his State of the Union address in January, the president still urged a “balanced” plan to reduce deficit spending without providing specifics. He did condition his support for entitlement reforms on changes in the tax code to ensure that rich Americans pay their “fair share.”

If this is the sort of “balanced” plan favored by Balls, it’s not balanced at all. Instead, it means raising taxes to finance ever more expensive welfare programs.

The Labour politician further blamed “austerity” for the stubbornly high jobless rate in the United Kingdom. Unemployment stands at 8.4 percent, comparable to the 8.1 percent in the United States.

“Where’s the jobs?” Balls wondered. What he glossed over is the fact that unemployment in the United States is now at the same level as when Obama took office in January 2009.