Busch: UK Tea Party in Action

Today, UK Chancellor of the Exchequer George Osborne said he will cut debt interest costs by more than 5 billion pounds by 2015. The goal is to eliminate the 156 billion pounds deficit and bring back fiscal probity to the island nation. The Cameron government is going to cut public sector employment by 490,000 by 2014-15, freeze pay for the remaining employees for 2 years and keep their pension contributions to just 3%. (In the upside down world of fiscal metrics, this 3% increase will be called a reduction from a larger pension increase that was promised.) As Osborne points out with complete clarity: the job losses were "unavoidable when the government runs out of money."

According to the WSJ's David Wessel on NPR, the US would have to cut 280k federal government jobs this year to match what the UK is doing. Unlike the United States, the new government in the UK has more power to enact the policies that they were elected to do with the prime minister's stronger control over spending. This is what should be cheered in the UK.

Yes, they are raising some taxes.

Sharon Lorimer

However, the majority of their deficit reductions are coming from spending cuts. This is the best mix for future economic growth if we believe research by former US CEA Chairman Christine Romer. Her studies showed a negative 3:1 for every tax raised.

Clearly, the UK voter decided that the country was going in a fiscal direction that needed to be corrected. Intuitively, the citizenry realized they were reaching a Reinhart & Rogoff tipping point whereby the size of their deficit was going to quickly reduce economic growth and potentially create a self-reinforcing downward cycle similar to Japan. They have voted in a government that is going to reverse that slide.

While there is short-term pain associated with cutting public spending, the medium to long term gain is to have the capital markets remain open to your borrowing as well as faster economic growth. It is the philosophy of the US Tea Party in action. Rick Santelli should be proud.

The central question for the United States is this: can we follow the example of our British cousins?

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.