Is there an English-speaking interest-rate hike sweeping the world? More importantly, will English-speaking economic growth principles rule the waves?
Most likely, both are correct.
The Reserve Bank of Australia and the venerable Bank of England raised their policy interest rates last week. These precautionary moves to maintain price stability actually caused stock markets to rally in both countries. Using history as a guide (U.S. rates frequently follow British rates), the U.S. Federal Reserve may be next in line to raise its policy target — especially after the American economy, now firing on all cylinders, created nearly 300,000 new jobs over the past three months.
Of course, the English-speaking countries have more in common than interest rates. Freedom-loving Great Britain and Australia have been integral in the global fight against terrorism. Seeing them in stride with the U.S. economically is also a good thing, particularly when they sound the pro-growth siren.
The immediate implementation of President George W. Bush’s supply-side tax cuts last May provided a huge jolt to domestic economic growth. You can rightly call it the Bush boom. Similarly, Prime Minister John Howard has jolted the Aussie economy with his tax-cut and deregulation moves: Australian unemployment is now an enviable 5.6 percent, while Aussie economic growth has averaged nearly 7 percent annually over the past four years.
Meanwhile in Britain, Finance Minister Gordon Brown has been teeing off on European Union (EU) bureaucrats for their missing-in-action growth policies. Brown noted that the European Central Bank has only lowered interest rates seven times (compared with 10 for Britain; 11 for the United States). He’s right — EU monetary policy is too tight. Year-to-date gold prices in U.S. dollar terms have increased 10 percent — indicating a looser monetary policy — while Euro gold is essentially unchanged.
Brown, along with Prime Minister Tony Blair, has also flatly told the European Union that Britain will never enter the Eurozone if English tax-and-welfare and labor-market regulations have to be harmonized with the EU. Such “harmonization” would clearly be an economic step backward.
The Margaret Thatcher legacy has given the United Kingdom a much more pro-growth tax-rate structure and an environment of social-service spending restraint. This has helped real growth in the United Kingdom near 5 percent in recent years. There is also a much more balanced labor-market, labor-union strike policy in Britain today. That’s why unemployment in Europe is about 9 percent, while British unemployment is 5.9 percent.
EU president Romano Prodi recently criticized an op-ed in the Financial Times co-authored by the prime ministers of Britain and Estonia. In the piece, the two leaders argued strenuously for competitive tax and budget policies as a means of exerting pro-growth policy pressures on “old Europe.” But Prodi labeled this “unfair competition,” and insisted on harmonizing exorbitant tax and welfare policies.
Does old Europe want Britain to flounder with it? Not only is tax-and-welfare spending too high in old Europe, but labor-market rules are so inflexible that it remains too expensive to hire, while its illegal to fire.
The free-market English-speaking world, with economic policies that are still driven primarily by Reagan-Thatcher capitalist principles, has persistently outgrown old Europe over the past 20 years. The latter is stuck in a big-government central-planning time warp that favors income leveling over entrepreneurship and maintains deep boot prints on private enterprise.
Think of this: Over the past 10 years, the U.S. economy has grown at 3 percent annually, while the once powerful German economy has grown by less than 1 percent since the mid-1990s and now boasts a 10.5 percent unemployment rate. Overall, Euroland growth has been zero.
Follow Germany? The EU? No, sir.
Ten new Eastern European countries are now scheduled to enter the growth-deficient European Union. But the Eastern Euros, recently liberated from Stalinism, know full well that they have more in common with the anti-terrorist and pro-growth policies of the English-speaking nations than with the failed policies of old-world Europe.
These recently democratized countries have been slashing taxes and rolling back Soviet-style central-planning everywhere. Their low-cost, free-market economies will pose strong competition to stodgy old Europe — which includes socialist-leaning Romano Prodi and his fellow Eurocrats. No wonder they want new Europe to fall in line.
Top personal tax rates are nearly 60 percent in France, almost 50 percent in Germany and 45 percent in Italy. But in new Europe, the top individual rate is 32 percent in the Czech Republic, 25 percent in Latvia, 33 percent in Lithuania and 38 percent in the Slovak Republic. Why should these supply-side countries be forced to strangle their newfound economic progress?
Geographic proximity is one thing, but the principles of political and economic freedom are quite another. A free-trade union between new Europe and Anglo-America would probably make more sense than “harmonizing” solid growth with recession and high unemployment.