Bill Carmichael: Obama learns financial lesson

“THE problem with socialism is that you eventually run out of other people’s money to spend.” It is a quote attributed to Baroness Thatcher.

In Britain, we have such bad short-term memories that we have to re-learn this painful lesson every few years – almost every time, in fact, that we are foolish enough to elect a Labour government, most recently with the Brown/Balls era that brought us to the brink of national bankruptcy.

But for Americans to see their country on its knees as a result of reckless and out of control spending must be a novel and distressing experience.

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This week the US avoided economic catastrophe by the skin of its teeth when President Barack Obama signed a bill to raise borrowing limits, just a few hours before the country was due to default on its £8.7 trillion worth of debts.

That the world’s most powerful economy is in such a mess is a matter of concern not just for Americans, but for the rest of the world too. And although the US narrowly avoided the calamity of default this week, it doesn’t mean it is out of the woods yet.

In fact, when news of the debt deal emerged, the stock markets suffered severe falls and the credit agencies warned that they may still deprive the US of its top AAA ranking, which would push up the interest it pays on its loans.

This is because the problem with the US economy isn’t that it is not borrowing enough, but that over the years it has borrowed way too much. Of every dollar the US government spends, it now borrows 40 cents – much of it from China.

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It has been fascinating to watch from this side of the Atlantic as Obama has put Left wing economic theory into practice.

According to Keynesian dogma, during times of recession the government must increase spending to boost economic growth. So from 2009 Obama pumped about $800bn into the US economy in a “stimulus plan”.

Shadow chancellor Ed Balls, the man largely responsible for our own economic collapse, has regularly praised Obama’s approach and criticised coalition policies for cutting “too deep, too fast”.

But what did American taxpayers get in return for the government spending their money? Not a lot, as it has turned out.

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Growth in the US is even more sluggish than in the UK – just 0.4 per cent in the first quarter of this year – while unemployment, at 9.2 per cent, and rising, is far higher than in Britain. In other words the Keynesian experiment has proved to be a miserable failure. Now we know what doesn’t work, perhaps we can all try something we know that does – smaller government, less public spending and lower taxes to stimulate economic growth.

And as Baroness Thatcher could have told Obama – you can’t go on forever spending money that you don’t have.

School term

Polly Samson, mother of jailed student rioter Charlie Gilmour, complains that her son is locked up in his cell for 23 hours a day. Er – that’s what happens when you go to prison, Polly. And if your son goes around attacking people and property, what do you expect?

But perhaps some good will come of Gilmour’s incarceration. He spent his schooldays attending £27,000-a-year Lancing College before studying history at Cambridge University.

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Yet such was his profound ignorance he professed he had absolutely no idea what the Cenotaph was and what it stood for, when he swung from it during the riots.

Is it too much to hope that he will receive some kind of useful education from the old lags at Wandsworth Prison – something his teachers and lecturers have singularly failed to impart?