By Francis Bator
Sir Andrew Large, former deputy governor of the Bank of England, advises the US to soon follow the UK example of fiscal surgery (in a letter to the FT on October 22). He appears to believe that the US too is “living beyond its means,” so “reductions in gross national product from… public spending cuts are inevitable”.
Not so, for the time being at least. True we continue to spend more on goods and services than we produce, importing more than we export to cover the difference ($539 bn/year in the second quarter = 3.75 per cent of gross domestic product). But we currently spend much less — and therefore produce much less — than our capacity to produce.