OFF THE GRID

Debt: What Language Do You Speak?

Jun 9, 10 | 7:40 AM   byMichael Wolff
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David Cameron, the new British prime minister, has told the British people in no uncertain terms their world is going to end. He was joined in this vision of misery by German Chancellor Angela Merkel.

Cameron was curiously upfront and actually rather eloquent about his nation being destitute in a particularly British bad-weather no-fun sort of way. The political calculation is undoubtedly that if you get people ready to believe it will be so bad, when it’s not quite as bad as that they’ll breathe a sigh of relief.

There are several problems for the White House here. For one, David Cameron is suddenly, if you squint, Churchillian, making President Obama seem even more like a wishy-washy, ever-treading-water bureaucrat. For another, and more significantly, it represents about as profound a split in how to deal with the economic crisis as there can be.

The Obama administration has staked its future on spending its way out of the hole we’re in. The Cameron coalition is reversing course and saying it’s going to use draconian cuts to get out of the mess. Indeed, all of Europe has suddenly found a new belief in conserving rather than consuming.

This is about a new and developing attitude towards debt. We got into this mess because of the private, unsustainable debt held by banks, and tried to get out of it by transferring much of that debt to government and then goosing the economy with even more national debt. Europe, spending alongside us, has piled up government debt even faster than we have and now seems ready to be taken down by it. Hence, the deep forthcoming cuts.

The Obama White House, on the other hand, is sticking to a pretty strict and old-fashioned Keynesian formula as it racks up historic deficits. The liberal economic wing of the party—with Paul Krugman as its titular head—continues to advocate even more spending and debt. And, in fact, if Europe makes these deep cuts, this will, in the short and medium term, put more pressure on the US to up its deficits to avoid the likely double-dip.

It is a fateful duel of logic:

The US position is that we over-borrowed our way into this crisis, so we need to over-borrow even more to get out of it.

The Cameron-led European position is that we over-borrowed our way into this crisis, so we must now curtail spending and pay back as quickly, if also as arduously, as possible.

Now, if things don’t get better tout suite, which surely they won’t, I would not want to be making the argument the White House seems on course to keep making. Nor, on the other hand, would I want to be forced to shift course and suddenly see the cautionary wisdom of the Europeans.

More of Newser founder Michael Wolff's articles and commentary can be found at VanityFair.com, where he writes a regular column. He can be emailed at michael@newser.com. You can also follow him on Twitter: @MichaelWolffNYC.
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