Britain’s political economy is in trouble, having contracted some “American problems” and created problems of its own.

Both sides of the Atlantic are characterized by underinvestment in the most valuable public goods and overinvestment in the least valuable. British sufferings today provide a glimpse into America’s potential sufferings tomorrow.

Take public infrastructure: Britain’s economic heartland in south-east England benefits from short distances and relatively well-integrated public transport, but the rest of the country suffers inadequate rail links, saturated and careworn roads, and peripheral airports that are poorly connected to urban areas. With air transport playing a greater role in high-value added trade and innovation, lack of connectivity consigns once-great cities to secondary status in the global economy. In America too, governments from the federal to the local level find little opposition to cutting spending on infrastructure without realizing the full economic costs.

The most glaring example of chronic British underinvestment is higher education – again a cautionary tale for Americans. From 1997, the Labour Party government expanded undergraduate numbers without commensurate public funding, while capping tuition fees at rates that covered few university costs. The Conservative-Liberal coalition government has restricted student places and raised the cap but also cut 80% of public funds formerly allocated to undergraduate education. The Conservatives are correct to blame the previous government for public debt and to argue that higher education should not and cannot be subsidized entirely through taxes. However, governments in continental Europe and Asia recognize that public financing provides a valuable, stable base for research and learning. This public and private good is all the more necessary in countries like Britain and the US where public education has been devalued for decades and was offset by well-paying international students, who now are going elsewhere (often in search of better infrastructure).

The British government could be cutting public health spending or a bewildering portfolio of benefits for people according to employment, medical, social, and family status. After over a decade of Labour government, most Britons were receiving one benefit or another. Some benefits are necessary, but with little accountability nobody knows for sure how many recipients are worthy. Certainly, many more Britons than necessary are chronically dependent on welfare.

The Labour government inflated public health and welfare expenses most egregiously, using the inputs as a measure of its commitment to public services without effective valuation of the outputs. The British public remains reticent about challenging the inputs and the Conservative-Liberal coalition is unwilling to confront the public’s ignorance. Hence, public infrastructure and higher education suffer most, while the National Health Service and most welfare benefits are considered untouchable.

American federal and state governments too are struggling to balance health-care with the costs (Americans spend as much of their income on health care as Britons do, even though most Americans spend it privately and most Britons spend it through taxes) and to balance an economically valuable welfare net without encouraging dependency. They should remember to issue more benefits with more accountability – as simple as means-testing, needs-testing, and term limits – and to demand objective independent valuation of the outputs of public spending.

For all the Labour government’s commitment to social spending, it spent more on defense (particularly foreign wars) than any British government since the Second World War. The current government is still paying – in the form of debt and legacy military commitments.

Americans are generally more conservative than Britons about public spending on health care and welfare, but Americans are more protective of spending on defense, a dogma that politicians have indulged for local goods. Objectively, cuts to defense spending would cut the public deficit quickest for the least cost to the economy, but few American politicians admit the opportunity.

Public spending is not the only part of our economic woes, but is symptomatic of a wider misguided Anglo-American macroeconomic policy that has thrived on cheap credit and financial wizardry made possible by deregulation. The interests of financial services were placed above those of other economic sectors and the tax system was reconfigured to shield corporate profits and capital gains. Combined with stagnant income for the lower and middle strata, the result is a fiscal hole that politics finds impossible to fix except by saving a few pennies at the expense of higher education and public infrastructure.

The Labour Party’s increased public liabilities, proportionately decreased receipts from under-regulated sectors, and over-regulation of other sectors (most notably education) effectively bankrupted Britain by the time the electorate voted it out in May 2010. Unless the US government taxes capital gains and corporations more, spends less on defense, and invests more in public infrastructure and education, more Americans will realize that a public debt that is growing faster than public receipts is really public bankruptcy. And they will vote for the politicians who said so first.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.