Thursday, June 24, 2010

Prepping for the Pain, Part I


For very different reasons, Britain and Iran were in the news this week for macroeconomic decisions that cause their citizens pain in the near term while positioning each country better to face looming hazards.

In Britain, the Conservative-led unity government unveiled a budget that will cut nearly all public spending by a quarter over the next five years while re-jiggering the country's tax structure to spare the poorest and squeeze the wealthiest. The lone bright spot is a reduction in corporate taxes to encourage job creation in the hope of not sending the country spilling back into recession. The move helps soothe bond-rating agencies chary of a Greece-style meltdown in northern Europe, and puts the country onto a more solid financial footing in the future.

Meanwhile Iran has been rationing gas and increasing its refining capacity in response to potential U.S. sanctions targeting fuel imports. The new sanctions would probably have little effect on Iran, and none at all on Iranian leadership, but workaday Iranian citizens are undoubtedly grumbling. (The story above notes that Tehran may even use U.S. sanctions as an excuse to remove an economically inefficient fuel subsidy, which will turn the grumbles into screams, but will still improve Tehran's economic posture in the long run.)

Britain's moves may still hurt its poorest citizens while Iran's help continue the country's outlaw nuclear program, but both countries are acting to ensure their longer-term good.

One can only hope U.S. federal government—which like the UK is laden with debt, legacy wars and an aging workforce—will somehow find a way to take unpopular but necessary economic steps to get out of debt and right its sagging balance sheet.

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