There is something about the dying embers of a year which causes the world to concentrate on entirely the wrong story. In the last days of 1999 many were fixated on the so-called ‘millennium bug’ rather than on the real computing crisis: the absurd over-valuations of internet companies which was soon to lead to stock market armageddon. In a similar way the end of 2012 was dominated by dire predictions of what would happen if the US were to fall over the ‘fiscal cliff’.
In the event, the fiscal cliff has turned out to be a lightly graded slope. This week the US Congress approved a compromise agreement of some tax rises and spending cuts. An 11th-hour deal was always likely to happen. The fiscal cliff was not a genuine economic crisis but a deliberate policy of mutually assured destruction designed to force two sides to settle their differences.
Meanwhile, the world has largely overlooked the real story of the US economy: that it is growing strongly. On 20 December the Bureau of Economic Analysis published its final estimate for annualised economic growth in the third quarter of 2012, revealing that the US economy is now growing at 3.1 per cent. Unemployment is down to 7.7 per cent, from 9.4 per cent two years ago. Even the housing market — which did more than anything else to create the economic crisis in the first place — has stabilised, and in many places prices are rising.
When American histories of the economic crisis come to be written it is likely that they will use the dates 2007–2012 to define it. British historians, though, will almost certainly have to use an end-date at least a couple of years later. Some European historians may not be able to establish an end-date at all, marking 2007 as the beginning of a long, generalised decline. The global economic story for the foreseeable future will be dominated by the growing gap between a resurgent US and a sclerotic Europe. There are straightforward reasons for this, if only European politicians could bring themselves to recognise them. Even with a relatively left-wing president in the White House, America remains a country with a strong presumption in favour of business.
This is especially true in the case of employment law. While Britain and other European countries cannot stop themselves from dreaming up ever more heavy-handed ways of ‘protecting’ employees from what they see as evil employers, the US treats the employee-employer relationship as one of two adults making a private deal: one wanting some work to be done and the other wanting to earn some money. US discrimination laws have done nothing to undermine the principle of ‘at-will’ employment law, where employers can reduce their workforces, and fire underperforming staff, without having to jump through legal hoops. That makes American firms better able to survive a downturn and to re-grow their businesses when times improve.
No less important is the US attitude towards energy. While in Britain the government continues to push up energy prices to force us to lower our carbon emissions, the US has shamelessly adopted a cheap energy policy, based on domestically produced gas. Paradoxically, the latter has been far more successful in cutting carbon emissions, as cheap gas replaces far more polluting coal-fired power stations.
It gets better, too. Cheap US energy is enabling manufacturers to contemplate repatriating manufacturing from the Far East, replacing coal-fired manufacturing with cleaner gas-based manufacturing — and facilitating the rebalancing of the economy away from services which has proved so elusive in Britain. British carbon emission cuts over the past 20 years have been illusory: they tend to ignore the fact that we have simply moved our carbon emissions overseas along with our manufacturing industry: if the carbon dioxide emitted globally in the making of goods for British consumers is included in the statistics, our emissions have increased.
The US is far from a perfect model for reform of the UK economy. America, like Britain, is running an eyewatering deficit: there, like here, governments have got to address their far greater enthusiasm for cutting taxes than for cutting spending. The US healthcare system is expensive and unwieldy — with taxpayers spending more per head on subsidising healthcare for the poor and elderly than British taxpayers spend on a system free at the point of delivery for all. US government departments, along with unions and consumer groups, are allowed too easily to run underhand protectionist campaigns using falsehoods and xenophobia to thwart competition from foreign companies.
But rather than submit to the sense of gloom which pervades economic debate in Britain, we need to ask why the US is recovering strongly from the crisis and we are not. We don’t have to sit shivering, muttering about how better things used to be. We could turn the gas up by reconfiguring our economy shamelessly in favour of growth.
Comments