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Austerity is not always the answer...but it is the Anglo-American model

The Anglosphere has a standard response to economic shocks. It battens down the hatches, cuts spending and allows unemployment to rise. The rise in unemployment cuts labour costs and gives a boost to the struggling businesses.

That's the theory, but not always the practice.

The Europeans take a different route, they keep spending high, shed employees through early retirement etc. and stop the worst of the damage.

One gives a turbo charged recovery but also leaves many behind, one smooths the ride but burdens the strongest dampening the economy.

Leaving people behind does not normally carry as much risk as it does today because today there is a sense of shared endeavour. We are all in this together and we all contribute by staying home, if those left behind in the recession that follows feel their effort is left unrewarded that creates a political problem.

The problem with Covid is the spending is already high, the borrowing at unprecedented levels and our economy is completely mothballed. Blyth believes that we need to plan for extremes and understand that allowing the fire of the post Covid recession to burn out puts our politics and society at a risk which has not been seen since the Great Depression. That goes against the grain of Anglo-American tradition, but the riots in America this week could be a foretaste of worse to come.

This has been painted as a national struggle. Anglo-American politicians need to be sure they remember that when people pull together there is normally a reward for that effort. This a "homes fit for heroes" moment, and we are yet to see if those politicians who lead the UK and the US have realised it.

The U.S. government does not usually spend liberally. Rather, it tends to adjust to economic shocks through unemployment and austerity—especially at the state level, where governors are often required by law to maintain balanced budgets.

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