Monday, February 16, 2009

Stability and the Anglo Saxon Economy

Chris Dillow reckons that based on the effects of the recession so far on various countries, Britain and the US, the Anglo Saxon countries are doing better than the eurozone. He goes on to suggest that this indicates that the Anglo Saxon model (as in debt, lightly regulated financial services and such)is not as unstable as you might think. It's especially pertinent given the economic news from Japan.

I have something of a disagreement with this viewpoint. The main problem is his use of the UK and the US, I believe that due to their size, since they are the worlds first and fifth (or maybe sixth) largest economies (according to wikipedia at least) as well as the diversity of their economies that they are in fact quite stable.

In a lot of this talk about various financial crises and such a lot of people have forgotten that there is a signifigant portion of our economy that isn't based around financial services and that continues to tick over, the same is true of the US. Both are big economies and can weather the financial storm, it's smaller economies that are going to really feel the pain, here is where we'll see the problems. Iceland and Ireland both of whom have set to expand their financial services have discovered the error of their ways.

I would also argue that there is some level of cause and effect here. There is no doubt that it is the financial services industries in these two countries, with their various "innovations" gave birth to the problems we are facing now. The resulting recession with it's effects is not only affecting the US and the UK but also the many nations who depend on the US and the UK as consumers.

To conclude then, I don't think the current relatively mild downturns in the US and UK can be considered a vindication of the anglo-saxon model.

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