In the debate yesterday the main problem as always was getting people to look at the facts. Conventional wisdom has it that the US has carried on spendign and borrowing on a large scale. This fiscal stimulus has promoted growth. Meanwhile according to the UK’s critics, the UK has cut too far too fast, resulting in practically no growth.
Let’s try looking at the official figures the governments publish. In fiscal year 2010 the US government, federal, state and local, spent $5.94 trillion. In fiscal 2014 they plan to spend $6.3 trillion. That is an increase of just 6%. In the UK total public spending was £669 bn in 2009-10, and will be £720 billion this year, an increase of 7.6%. Current public spending rises by 12% over the same period.
These figures are not adjusted for inflation. If you look at the real changes, the US had a small fall whilst the UK had a real increase in current spending over that time period.
If you look at the all important question of whether public spending contributed to growth or to a decline in economic activity again the pattern is different. In the US in 11 of the last 13 quarters US public spending has made GDP growth less. In all but one quarter in the UK between Q4 2010 and Q4 2012 public spending has made a positive contribution to UK growth.
The gap between the two economies is getting larger, with the US now starting large cuts in federal spending after sustaining previous levels. In the last quarter of 2012 US federal spending was cut by 14.8% and by 8.4% in the first quarter of 2013.
It is therefore interesting to see that the US has achieved a much better growth performance than the UK in recent years. It gives a lie to those who both argue the US has sustained higher real spending levels with higher growth in spending than the UK; to those who say the Uk has actually cut spending overall; and to those who think cutting public spending by more will automatically give the country doing it less overall economic growth.