The UK is a cautionary tale for the U.S.
Learning from Britain's missteps doesn't mean looking down on them.
“Be assured, my young friend, that there is a great deal of ruin in a nation.” — Adam Smith
The U.S. and the UK have one of the longest and most important relationships in all of history. The UK is America’s parent civilization, and even after the two diverged and had a period of rivalry, they came back together to more or less jointly craft the entire modern age. In terms of science, philosophy, government, and every other realm, the Anglo-American alliance was more than an alliance — it was a joint civilizational project.1
That also means that the U.S. and UK are able to learn from each other’s mistakes. This is often a painful and fraught process, because it involves quite a lot of cross-Atlantic shouting and insults. If you bring up the UK’s flaws on social media, you’re going to get an earful about how America elected Trump, Americans have no health care, American kids are constantly dodging bullets, and so on, so Americans have no room to talk. This is unhelpful, but inevitable. It’s a defensive reaction by left-leaning British intellectuals and elites who are occupied with their own internal policy and culture-war battles with other British people. Any criticism from an American is seen as giving free ammunition to the local enemy, so the natural impulse is to screech “Shut up, Yank!!”.
But the Yanks must not shut up. Whether or not the Brits need our advice, we need to have our own internal discussion about what’s going on over in the UK and how we can use it to inform our own choices. And although there are still a few things to admire across the pond, the UK mostly now functions as a cautionary tale for the U.S. — yes, despite Trump, and guns, and high health care costs.
Whether you think the UK has been falling behind America economically for a decade or for two decades depends on which set of prices you use to measure living standards. If you use the two countries’ national price indices, the UK has been growing slower than the U.S. since the financial crisis of 2008; if you use PPP prices, as Paul Krugman prefers, the UK’s relative stagnation has come only since Brexit in 2016:
That controversy leaves an important question unanswered — whether 2008 or Brexit was ultimately more damaging to British growth. But it also obscures an even more important fact, which is that by any of these measures, the UK is much poorer than the United States:
A data point that gets thrown around a lot is that the UK is as poor as Mississippi. In GDP (PPP) terms, that’s true — Mississippi’s income per capita is about $56,000, roughly similar to the UK. That doesn’t mean life is equally as good in the two countries — Mississippi is more violent and less healthy than Britain. But unless you think that Britain had to sacrifice a significant portion of its material wealth in order to be safer and healthier, this is a bit beside the point. France and Germany, which are just as safe and healthy as the UK (if not more so), also have significantly higher incomes. This is from a Resolution Foundation report:
Middle-income Brits are now 20 per cent poorer than their peers in Germany and 9 per cent poorer than those in France. Worse, low-income households in the UK are now around 27 per cent poorer than their French and German counterparts. It’s important to comprehend just how material these gaps are: the living standards of the lowest-income households in the UK are £4,300 lower than their French equivalents.
A very deep principle in economics is that if two countries are roughly equivalent in terms of their basic institutions, they ought to converge to similar income levels. The fact that the UK and the U.S. have diverged rather than converged suggests that the former must have some institutional weaknesses relative to the latter. And that implies that there are cautionary tales here for America.
What are those cautionary tales? There are a number of good breakdowns of the UK’s problems, and you can learn a lot from observing the overlaps and disagreements between them. Ben Southwood, Samuel Hughes, and Sam Bowman have a long piece called “Foundations”, which basically makes a libertarian YIMBY argument; they claim the UK is over-regulated and can’t build housing, infrastructure, or really anything else. Jim Tomlinson has a rebuttal in which he argues that the real barrier to investment is the financialization of the UK economy. Ben Ansell argues that the UK is in a version of the “high-level equilibrium trap” — the UK is still fairly wealthy, so its politics center around how to divide up the pie rather than growing it. The Resolution Foundation’s report has lots of suggestions for how to get Britain growing again. Michelle Kilfoyle also has some recommendations. These are only a few examples.
But my favorite rundown is probably the recent Atlantic article by Idrees Kahloon. The article points out that it isn’t just private industry that’s broken in the UK; it’s also the effectiveness of the government institutions that many British people cherish. This includes the fabled National Health Service. Kahloon writes:
Taxation is at the highest level since World War II, yet public services have deteriorated. The National Health Service, the celebrated pillar of the British cradle-to-grave welfare state, has a backlog of 6 million patients—almost a tenth of the population—waiting for treatment. The health service now has to spend more money settling maternity-malpractice claims than it does on actually providing maternity care. Many Brits can neither obtain an appointment with a publicly funded dentist nor afford a private one; in a 2023 survey, one in 10 reported doing DIY dental work, in extreme cases extracting their own teeth or gluing broken crowns back together…
Incomes can be shockingly low: Junior doctors recently went on strike for the 15th time in three years over their salaries, which start at just £38,800; the median salary for British civil servants is £35,680…
Recent plans to transform the country['s transportation system] have rested in no small part on High Speed 2, a superfast rail line intended to connect London with Birmingham, Leeds, and Manchester. But since HS2 was proposed, in 2009, its costs have tripled, to more than £100 billion. It is the most expensive rail line in the world. (A special structure to protect a rare bat species near the rail line in Buckinghamshire required 8,000 permits and was built at a cost of £216 million.) The most important sections of the proposed route have been lopped off. The rump line—going from Birmingham, Britain’s second-largest city, to not-quite-central London—may be finished by 2040…
Building infrastructure, or much of anything else, has become all but impossible in the United Kingdom. In addition to having the world’s most expensive (not yet built) train line, Britain also hosts the world’s most expensive (not yet built) nuclear-power plant, Hinkley Point C. Its environmental-impact assessment ran 31,401 pages; the plant will feature a £700 million “fish disco,” which will pulse sounds underwater to deter animals from its intake pipes. The government spent 32 years and £179 million planning a tunnel beneath Stonehenge to relieve traffic, only to officially scrap the plan this year. Even basic tasks, such as obtaining power, can be nightmarish…
Britain suffers from a housing crisis significantly worse than America’s. The problem cannot even be blamed on zoning, because Britain does not have a zoning regime to speak of. Rather, every attempt to build is a painful, ad hoc negotiation with local government councils and NIMBY residents. As a result, housing costs per square foot are among the highest in Europe. In the words of one report, “Our housing stock offers the worst value for money of any advanced economy.” France has roughly the same population as the U.K., but almost 50 percent more homes. And yet, since the financial crisis, the U.K.’s rate of housing production has only fallen…In London, the typical house sold in 2024 cost 11 times median earnings.
One of the key lessons here appears to be that NIMBYism kills the economy by a thousand small cuts. But Americans already know this. Kahloon’s description of Britain’s struggle to build high speed rail sounds uncomfortably like California’s story. And the housing story is also very similar to America’s. Most of the other analyses I listed above identify NIMBY-driven housing scarcity as one of the key factors holding back growth in the UK, and recommend various different strategies to address it.
I’m not sure the U.S. has a lot to learn from those various proposals, since they’re highly specific to the UK’s institutional context. But the overall lessons here are worth reiterating: Approval policies full of veto points and cumbersome procedures are a drag on the economy, local control can easily go too far, good infrastructure is often a matter of low-cost efficiency rather than pure willingness to pay, and so on. Americans have a severe NIMBY problem, but they can look over at the UK as a cautionary tale of how bad things will get if the NIMBY problem is allowed to fester.
Another lesson that Americans have already learned is the peril of excessive financialization of the economy. Almost everyone agrees that the UK economy is excessively concentrated in London. John Burn-Murdoch writes:
It will surprise nobody that London accounts for an outsized share of Britain’s output, but the magnitude of the UK’s economic monopolarity is remarkable. Removing London’s output and headcount would shave 14 per cent off British living standards, precisely enough to slip behind the last of the US states. Britain in the aggregate may not be as poor as Mississippi, but absent its outlier capital it would be.
Not only does this mean that the fruits of the UK economy are inequitably distributed — requiring a constant stream of politically difficult transfers to keep other regions afloat — but it also means that NIMBYism bites much harder than it otherwise would, because pricing people out of London means pricing them out of participation in one of the few healthy parts of Britain’s economy, and because pricing people out of highly productive cities hurts productivity.
And part of the reason the UK’s economy clusters in London is finance. As Reuters reports, the UK economy specializes in finance:
The United Kingdom is unusually dependent on finance. Financial services account for about 12% of economic output, opens new tab, compared with around 7% in the United States. Much of that activity emanates from London. The City is the world’s second-largest asset management hub, the leading venue for foreign exchange trading, and the number one location for over-the-counter derivatives.
Finance is an industry with an especially strong clustering effect; almost every country has just one city that’s the “financial capital” — NYC in the U.S., Tokyo in Japan, etc. But in an economy as financialized as Britain’s, the financial capital is the center of the entire economy, probably to an unhealthy degree.
Another obvious downside of financialization is that specialization in a single tentpole industry made the UK economy unusually vulnerable to a crash in that industry. The financial crisis of 2008, and the follow-on Euro Crisis in the years afterward, dealt a heavy blow to the UK finance industry — and, thus, to the UK economy. Whether you think Britain’s GDP stagnation truly began in 2008 or 2016, it’s inarguable that real wages stagnated and fell for years after 2008. Compare average weekly earnings in the UK to those in the U.S., and the difference is crystal clear:2
Whether financialization has other drawbacks — excessive corporate short-termism causing lack of investment and deindustrialization, financialization of housing development causing shortages, etc. — isn’t clear. But just these two negative effects — the UK economy’s hyper-concentration in London, and its vulnerability to single-sector shocks — provide a cautionary tale about letting an economy rely too much on the finance industry.
Again, this is a lesson that Americans already learned, at least partially, after 2008 (though thankfully, the lesson was somewhat less painful for us than for the Brits). But one lesson from 2008 that the U.S. should pay attention to is that fiscal austerity, if done too abruptly and carelessly, can leave long-term scars on an economy. Kahloon writes:
[T]he government’s actions during and after the [2008] crisis compounded the damage. Rather than increase spending to revive depressed demand, as modern Keynesians would counsel, the government…opted to slash budgets as revenue plunged…
Funding for day-to-day NHS operations was maintained, for instance, but only by cannibalizing the capital budget. A 2024 government report found that, as a result of austerity, Britain has “crumbling buildings, mental health patients being accommodated in Victoria-era cells infested with vermin with 17 men sharing two showers, and parts of the NHS operating in decrepit portacabins.”…
After austerity cuts to welfare benefits took effect, the share of children who grew up in long-term poverty, meaning half their childhood or more, shot up from about 14 percent to 23 percent. Nutrition appeared to suffer, and doctors reported increased cases of diseases stemming from vitamin deficiencies, such as rickets and scurvy.
The U.S. needs to hear this lesson. Our debt problem is becoming unsustainable:
We’re going to need to do fiscal austerity, but it’s important that we do it gradually, by restraining the growth of spending (and raising taxes), rather than by abruptly slashing government services and public works.
Kahloon’s example of the NHS actually demonstrates another lesson — the UK’s strategy of providing health care is probably uniquely flawed. In most advanced countries, the government provides universal health insurance; the government pays part of the cost of health care, but it doesn’t actually provide the care directly. The UK government, in contrast, provides health care directly to its people as a state-owned enterprise.
Britain’s NHS helps control costs in the short term; the system is cheaper than those of other rich countries, for roughly similar outcomes. But in the long term, it makes the UK’s health system subject to the whims and vagaries of politics. After the 2008 crisis, the UK disinvested severely from health care because of fiscal austerity policy, while other countries continued to do the necessary capital spending to maintain future services. This is a big part of the reason why the NHS system is now widely seen as falling apart.
The U.S. is vanishingly unlikely to switch to nationalized, state-run health care provision — at the very most, we’ll get a system of national insurance, like most other rich countries have. But watching the degradation of the NHS should remind us of why direct government provision of necessary services is so dangerous. It’s not necessarily that government is inherently inefficient; it’s that it’s inherently political. UK-style austerity is one reason government can starve its own enterprises of capital spending, but it’s not the only one — under Hugo Chavez, Veneuzela’s government starved its own state-owned oil company of capital investment in order to deliver a bonanza of government largesse, with predictably disastrous results. We should remember this when socialists like Zohran Mamdani promise to run essential services through the government.
One key lesson that all the analyses of Britain’s troubles seem to already have internalized, but which the U.S. needs to pay attention to, is that maintaining overseas markets is very important. Whether 2008 caused a long-term economic slowdown or not, 2016 definitely seems to have done so. Brexit is the huge, looming shadow that hangs over everything that has happened to the UK economy over the past decade.
Bloom et al. (2025) study the growth impact of Brexit, looking at both macro data and micro data. For the macro, they assume Brexit was an unanticipated shock, and compare the UK to other countries. For the micro, they look at how various British businesses fare after Brexit, according to how dependent they were on the EU before the big surprise breakup. Both estimates agree that Brexit was a negative shock:
[B]y the end of 2025 Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating steadily over time. We estimate that investment was reduced by 12% to 13%, employment by 3% to 4% and productivity by 3% to 4%. These negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.
The U.S. should look at Britain’s experience and remember that international markets matter. The pre-Brexit UK was a more internationalized economy than the pre-Trump U.S. — exports are over 30% of UK GDP, compared to only 11% in the U.S. But that seemingly small stream of exports revenues supports a lot of more local industries, through the magic of local multiplier effects. If Trump and his successors disrupt those markets by starting pointless trade wars with allies and friendly countries, the results won’t be quite as bad as in the UK, but they won’t be good.
A final lesson that the UK’s failures can teach the U.S. is that energy supply is very important. Most analyses tend to gloss over the chronic energy scarcity that has afflicted the UK in recent years. “Foundations”, however, puts this squarely in the limelight:
High energy costs help make British industry uncompetitive, increasing the country’s reliance on finance. They also directly impoverish the British people, who are forced to make do with much lower energy consumption than people in other rich countries. Here’s electricity generation per capita:
Energy is one very easily identifiable, tangible dimension in which British people are much poorer than Americans.
The Economist ties Britain’s energy scarcity to its overly rapid and haphazard push for decarbonization; having banned coal, and with natural gas now extremely expensive due to the Ukraine war, the UK has been forced to rely on hideously expensive offshore wind power.
The U.S. doesn’t have this exact problem. Because the U.S. has much more land and much more sunlight than the UK, we can use solar power (with batteries), which is much cheaper than offshore wind and are getting cheaper all the time:
But the general lesson remains — there is no such thing as a low-energy rich country. The MAGA movement’s irrational opposition to solar power is even more foolish than Britain’s haphazard push to ban coal.
So to sum up, the UK’s sad experience with economic stagnation offers several important lessons for America:
NIMBYism is very bad
Excessive reliance on the finance industry is dangerous for many reasons
Abrupt, poorly-designed fiscal austerity can do long-term damage to an economy
Direct government provision of essential services is easily politicized
Cutting a country off from its export markets is very bad
Energy abundance is important for both industry and living standards
Overall, the UK should serve as a reminder that economic growth is very important, and countries turn away from growth at their peril. The UK, caught up in endless political turmoil and culture wars, has forgotten the overriding importance of growth for national happiness and well-being. The U.S., facing its own political chaos and culture wars, should try very hard not to make the same mistake.
America’s second most important relationship, and arguably its most important in the post-WW2 period, has been with Japan — our “other special relationship”. But that’s a topic for another post.
Actually this comparison is slightly flawed, because the U.S. data is only for the private sector, but adding in the government won’t change the story because U.S. government workers saw more of a pay increase relative to private-sector workers during this time. Also, note that this comparison doesn’t care about PPP, since each country’s workers are paid — and consume — in their local currency.
I think the most instructive comparison point for the UK is France, both in where neither country is doing especially well, and what the UK more specifically is bungling. They're similar-ish sized countries in population, both in western Europe, and both advanced services-oriented economies. Also, neither has exactly had scorching-hot economic growth in the 2020s. I think this points to a general problem medium-sized countries suffer from in our current global economic system, where globalisation is stagnating and the big industries of the future, especially AI, are really capital-intensive. The US overcomes this, and dominates, by being big, an option neither France nor the UK have unless the EU fundamentally changes.
However, there is also clearly a UK-specific problem, one that becomes obvious when you look at the two countries side-by-side as Noah points out. I've lived in France for close to four years in various parts of the country after spending about a decade in England, mostly in the southeast. The standout differences are the French state's ability to lift and shift, and how many fewer options NIMBYs have here.
Because of that, the housing and infrastructure situations in both countries are night-and-day. I now live in an energy-efficient new build in one of the most desirable parts of France. It took some time to get it built, but the local and national governments had the tools to overcome opposition to it. The same would be almost inconceivable in the UK. Similarly, I can get excellent mobile signal in empty farmland in France, but will struggle almost anywhere in England that isn't London.
I think this, and of course the country's famous high-speed rail network, really improve both labour mobility and economic opportunity in cities outside of Paris. The result is not only a stronger economy but one where secondary cities are noticeably more productive than is the case in the UK.
I live next to the Polish border and I visit Poland often. I am also the sort of person who likes to talk to strangers, like cashiers in a Zabka store.
You can often tell that someone worked in the UK by the fact that they have something UK-related on them or near them. A small pin with the Union Jack, or a scarf, or a picture of London next to their cash registry. They obviously liked Old Blighty.
But they also all agree that the old recipe "go to England for work and make some money" stopped working and that the overall balance of wages, cost of living, safety etc. is now better back home in Poland.