Tuesday, 26 April 2011

The Left's "Alternative" Has Backfired in America

This week’s announcement by leading rating agency Standard and Poor’s that it has changed its outlook for the United States from “stable” to “negative” is abysmal news both for America, and also the British left.

The announcement – that essentially states that there is a one in three chance that the USA could lose its much valued AAA credit rating within two years – is a stinging condemnation of President Barack Obama’s refusal to make any significant spending cuts and instead to spend even more than his predecessor. Despite a handful of cuts passed through the House of Representatives last week, they look insignificant in the face of other legislation such as the $1 trillion entitlement package known as Obamacare. The message from S&P is clear: the US leadership is not serious about dealing with its deficit and debt, and therefore is putting its economy at significant risk.

For America to lose its AAA rating would be disastrous. To know this, one only needs to look at the way the market reacted when the announcement that America might lose its AAA rating was made: US government bond prices fell alongside the S&P 500, gold prices jumped to a new record of $1,496, and the dollar fell sharply against the euro and the pound. One shudders at the thought of the untold damage it would do to the American economy if they were actually to lose the AAA rating.

Britain on the other hand is judged quite well by Standard and Poor’s. Despite suffering a recession twice as severe as that of the US, the UK is praised for being on a credible fiscal consolidation plan that “sets the country’s general government deficit on a medium-term downward path, retreating below 5% of GDP by 2013.” Simply put, George Osborne is doing the right thing, and Britain is on the right track.

Not only is the praise of Tory policy bad for the British left, but the condemnation of the Obama Administration’s economic policy is also a condemnation of the so-called “alternative” that many on the British left have been calling for in recent months. Obama’s pseudo-Keynesian economic policies of tax and spend are exactly the same as those being called for by senior left-wing politicians in this country, and Obama’s programme has been specifically held up as the example to follow by both Ed Balls and Ken Livingstone.

The ludicrous Obama policy of spending oneself out of recession has backfired spectacularly and yet is the policy that is still advocated in Britain by left-wing groups such as the Labour Party, the Socialist Worker Party, and unions such as the TUC. Their “alternative” is being played out in America, and is bringing the once strong leader of the free world to its knees.
Had Britain followed this outdated form of economics – which was the reason our recession was so brutal in the first place – then we would not only be in the same precarious situation in which
America now finds itself, but it would be even worse as for smaller nation like Britain that would be less able to absorb the shock of the consequences of a drop in credit rating.

The left’s economic policies have been wrapped up in fluffy language and good intentions. Unfortunately, economic reality takes little notice of either of these two things, and this warning shot fired by Standard and Poor’s should wake those who thought our deficits and debt were low priorities out of their slumber. If Britain wishes to be open for business once again, and begin rebuilding its once strong economy, it must continue along the line of cuts as it is doing. Should it fail to do so, it will follow its allies across the pond into another economic crisis. We must not allow left-wing groups here to convince us to drag us off our present course.

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