Peter Matheson

Economic Counsellor

Part of Partners in Prosperity

23rd May 2013 Washington DC, USA

A Tale of Two Summers

Two countries separated by different summers

It’s that time of year again when Washington D.C. slowly but surely starts to melt. The heart of the East Coast summer time. Temperatures in the 80s, 90s and even higher. Suffocating humidity. Blazing sun. A feeling that we could be living in a swamp. The realisation that we actually are living in a swamp.

To some British people, deprived of really convincing summer times, isolated from the sun by the grey, overcast skies, the East Coast summer can have appeal. US summers are hotter, longer and more consistent. Many pasty faced Brits will take that humidity thank you very much for a bit of sustained sunshine and an opportunity to wear shorts and flip-flops. South Beach is a long way from Brighton.

I think about this a lot primarily because I find the East Coast summer a burden. But, perhaps because I think about it a lot, I am struck by how the differences in our summer times in some ways mirror differences in our economies.

The temperature in Washington D.C. in July has an average high of 89 degrees Fahrenheit . In London, it averages 73. Except in London we would describe that as being 23 degrees Celsius because that’s how, on our metric system, we tell temperatures. Likewise, British statisticians report their economies in slightly different ways to their US counterparts . UK economic growth in the first quarter was 0.3 per cent. US growth was 2.5 per cent. But the UK figure measures the change in the size of the economy between the last three months of 2012 and the first three months of 2013. The US growth figures do that and then assumes that the same growth rate is maintained for four consecutive quarters to give a more underlying perspective. So, on a like for like basis, the US growth rate was around 0.6 per cent to the UK’s 0.3. Or 2½  per cent versus 1¼.  Fahrenheit versus Celsius. Dollars versus pounds. Annualised versus quarterly. Two countries separated by a common language and different Mother’s Days.

And just as average US temperatures are higher – most, if not all of the USA is further south in latitude (west to east) than the UK – growth rates are also a bit higher than in the UK. Commentators often focus on the short term – US growth versus that of the UK in 2013Q1 or in 2012 – but actually the phenomenon is much longer standing, persisting through multiple Governments on both sides of the Atlantic and through very different policy regimes. US post-war growth averages 3.1 per cent, UK growth 2.5 per cent.  There are multiple, underlying reasons for why that might be. Some examples as to why the US achieves this better long-run performance could be better market dynamics, sharper incentives and more entrepreneurship. Indeed,  one of the roles an Embassy plays (and my team is particularly involved in) is to try to learn positive lessons from our hosts and to use those insights to help shape initiatives back home. Such work does not deliver results overnight but can make a positive contribution to long-run competitiveness.

Finally, for much of the US, summer arrives earlier than in the UK. Temperatures heat up pretty steadily in April and May and by the time June comes around it’s not unusual for us to be “enjoying” 90 degree plus days. In the UK, the process is rather more protracted and tortured; a couple of nice days here; wet, chilly weather for a few days there; possibly snow in April and May! Likewise, just as weather patterns often begin here, it is often observed that the US business cycle often ‘leads’ the global cycle, including the one in the UK. The US entered recession in 2007 and began its recovery in 2009. The UK recession did not commence until 2008 with recovery not arriving until a bit later too. A similar pattern was observed in the early 1990s.

There are firm scientific reasons why a continent like the Americas warms up earlier in the year than Europe. And there are meaningful, empirical links that can be made between the US and US economies – not least the fact that around 15 per cent of our exports go to the US with a huge flow of investment going back and forth between our economies every year. And the US is such a big economy that its performance inevitably has powerful ripple effects around the world, including to the UK.

But, as with all analogies, we shouldn’t make too much of them. By persisting with sounder policies over the long-term, some of these patterns and relationships can be influenced and changed. With more far sighted policy horizons and more sensible policy delivery than the UK has historically achieved, for example, we could, one day, enjoy an underlying growth rate the same as the US has traditionally enjoyed. And that improved economic stewardship is precisely what the UK coalition Government has been pursuing since 2010. The UK Government has a wide ranging set of initiatives designed towards the goal of raising underlying UK growth. Sustainable deficit reduction is one part of it but so are pro-business tax reforms and focussed employment, infrastructure and industrial initiatives.

In other words, we can change and influence the paths of our economies. The same cannot be said for the good old British weather.

About Peter Matheson

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury.…

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury. Principally advising Government Ministers on the economic forecast and related macroeconomic developments. He also worked for a period for the Scottish Government on economic issues.