About a year after the current economic downturn, sometimes referred to as the “Great Recession”, began in 2007, a number of national governments around the world began to consider spending stimuli in order to shock the economy back into growth. This happened despite the warnings of some economists that the stimulus, and more importantly the financial market bailout, would only shift the financial market meltdown on to the shoulders of governments. During the 2010 World Economic Forum held in Davos Switzerland, participants from business, industry and politics agreed that a sovereign debt crisis was threatening to slow the recovery. However, no specific solutions were agreed upon by all of the participants.
Now almost half a year later, the government of Great Britain has decided to cut its budget back significantly in order to reduce the amount of national debt that the country has. This will be accomplished primarily by massive cuts in spending. However, President Obama and his White House economic team are concerned that decreased fiscal spending by industrialized countries could worsen the economic recovery underway.
Critics, however, note that the recovery has been sluggish and that it may not be possible for a country to simply spend its way out of debt problems. However, some of the programs which will be cut in order to restore budgets are those which provide for some of the world’s most vulnerable citizens. In Great Britain the budget for maternal and child welfare programs will be cut in order to allow the corporate tax rate to decrease from 28% to 24%. Britons are hoping that this decreased corporate tax rate will allow for a return to economic growth in Britain, and that it will specifically encourage businesses to open up shop there. For centuries London has been a global economic center, and loss of this hub of business activity may have made some in Great Britain to make the budget cuts.
However, as rest of world tightens their belts, the United States has passed health care legislation, which depending on which numbers you look at, could cost hundreds of billions of dollars. Does this mean that the president made a mistake by trying to pass sweeping health care reform in a time of unprecedented economic difficulties?
A lot of factors influence a country’s economic activity, and as the obesity epidemic grows in industrialized countries, the healthiest nations may be most able to compete in the global market place. It is also expected that health care reform in the United States will allow people to more easily from state to state without fear of losing their health care. This may allow some to move out of poorly performing economic areas, such as the rust belt, and into areas where jobs are more plentiful. Such population shifts occurred during the Great Depression, and may needed to help rebalance the current economic mess.
While Europe had hoped that the Euro and economic reform would make Europe an economically unified group of countries, health care reform in the United States may make such an economic super zone a reality. As governments search for ways of encouraging new small business growth, freeing people from debt due to health care costs and helping them live healthier lives seems like a good way to provide an environment where small businesses can take off.
Nonetheless, the approach taken by the United States when compared to other countries in the G-20 is quite different and no one is sure which one will work. While health care reform was probably not a mistake, bailing out failing financial institutions which should perhaps have been allowed to go bankrupt, and spending hundreds of billions on an apparently ineffective stimulus may have been. These last two decisions may have done little to end the current economic downturn.