It took some chutzpah for Mitt Romney supporter Iain Duncan Smith to declare on BBC Radio 5 Live last night that it was “very worrying” that the United States hadn’t “bounced back from this recession”. Unlike the UK, the US has more than recovered from the downturn of 2008-09.
As the graph below shows, while the US has grown consistently since leaving recession in the third quarter of 2009 (with the exception of Q1 2011 when output was flat), Britain has only recently returned to growth after three quarters of contraction. Indeed, by one definition at least, we’re still in recession. Unlike the US economy, which is now 2.3 per cent above its pre-recession peak, the UK economy is still 3.1 per cent smaller than it was in the first quarter of 2008. Over the last year, while UK output has remained flat, the US has grown by 2.3 per cent.
The divergence in performance is due in no small part to the decision of the US government to pursue stimulus and the decision of the UK to pursue austerity. Barack Obama’s $787bn fiscal stimulus, a mixture of tax cuts, infrastructure projects and increased unemployment benefits, is estimated to have increased real US GDP by around 3.4 per cent and to have created or saved 2.7 million jobs (see this study by Mark Zandi, a former economic adviser to John McCain, and Alan Blinder, a former vice-chairman of the Federal Reserve). By contrast, the coalition’s (non-expansionary) fiscal contraction is thought to have reduced GDP by 4.3 per cent this year.
Duncan Smith is welcome to invite comparison of the two economies (not least because it aids the case against the government’s policies), but he should know that there can only be one winner.