Deficit hawks are flying high in Washington.
With rediscovered virtue, Republicans are vowing to rein in government spending and cut the deficit. Incoming House speaker John Boehner argues that voters want “a smaller, less costly” government, while Republican senator-elect Pat Toomey says that “the government has overreached dramatically. . . . Spending has been wildly excessive.” Even Democrats are singing a new tune, with Senate majority whip Dick Durbin saying that his party will be looking for compromises: “We’re going to be giving on spending, I’m sure.”
But restoring fiscal sanity won’t come easily. The Republicans’ $100 billion in promised spending reductions will hardly make a dent in last year’s $1.29 trillion deficit. To make a difference, would-be cutters will have to convince a skeptical electorate — polls consistently show that most substantial, specific spending cuts are unpopular — and navigate a treacherous two-year electoral cycle.
Across the Atlantic, however, the British Tories have demonstrated how a newly elected party can deliver a program of radical spending cuts. The coalition government, led by Conservatives and supported by Liberal Democrats, aims to cut spending by £81 billion and departmental budgets by 19 percent over five years, eliminating the U.K.’s structural deficit. It is a strikingly bold plan: An estimated 500,000 public-sector jobs will be lost; higher-education spending will be reduced by 40 percent; and departments will be cut by up to 51 percent.
These dramatic cuts illustrate the kind of action the U.S. will eventually have to take. The U.K.’s fiscal context is roughly analogous to America’s: The current budget deficit totals 11 percent of GDP in the U.S and 10 percent in the U.K., while the national debt is 66 percent of GDP in the U.S. and 69 percent in the U.K. (2010 figures). In many ways, however, the Conservatives’ success at tackling the deficit illustrates the roadblocks that Republicans face en route to implementing such policies.
Throughout their recent election campaign, the Conservatives claimed that failure to deal with the deficit would lead to a Greek-style meltdown. They could credibly point to a nearby country with similar deficits and argue that a sudden spike in U.K. bond yields could cause a vicious spiral. In Prime Minister David Cameron’s words, “Greece stands as a warning to what happens if you don’t pay back your debts.”
This clear and present danger generated a broad consensus among political parties about the importance of fiscal consolidation. The leader of the traditionally left-leaning Liberal Democratic party acknowledged the need for “savage cuts” in public spending, and even the Labour government set out plans to reduce public spending (albeit slowly and with significant tax increases).