WASHINGTON -- The chilliness is understandable. When David Cameron, Britain's new conservative prime minister, met with Barack Obama this week, the president was also encountering his worst political nightmare. If Cameron succeeds, he will do more than save his ancient island from the economic fate of Greece -- he will provide a model for Republican victory in the 2012 U.S. presidential election.
In his passion for fiscal austerity, Cameron resembles the new breed of Republican governors for whom the art of governing begins with the discipline of accounting. He is a taller Mitch Daniels, a svelter Chris Christie. During the past fiscal year, Britain's deficit was larger as a percentage of its economy than Greece's. Cameron's June 22 emergency budget proposed the deepest, most sustained reductions in British spending since World War II. Health programs and foreign assistance are fenced off from cuts. But other government departments will see an average of 25 percent reductions over the next five years.
Bond investors and credit raters have responded positively to Cameron's austerity budget. When the cuts kick in, other responses could include strikes, demonstrations and riots.
This is a risky strategy in a nation where "socialism" is not an epithet but a founding commitment of one of the main political parties. But Cameron's austerity has the virtue of economic responsibility. It is easy to close a budget deficit with massive new taxes -- but it is also massively destructive to economic growth. So Cameron has proposed about 4 pounds in spending reductions for every pound in tax increases. A recent study of 44 major fiscal adjustments in developed nations since 1975 found that a one-percentage-point increase in taxes as a portion of GDP cuts annual economic growth by an average of 0.9 percentage points. Reducing government expenditures by one percentage point, in contrast, increases average annual growth by 0.6 percentage points.
If Cameron's approach works -- dramatically cutting deficits without stalling economic growth -- it will be an obvious, powerful example for America and other nations.
But Cameron's progress offers two other lessons that some Republicans may be less willing to acknowledge.