By Teresa Welsh |
Yes, we have accomplished enough deficit reduction for the time being, and probably too much in the very short-term. Three years ago the budget projections were legitimately worrying. Debt was expected to climb year after year to heights not seen in decades. But, simply put, that is no longer true. The budget picture has improved substantially.
Even without the damaging and shortsighted "sequester" spending cuts, debt as a share of gross domestic product is projected to be at exactly the same level ten years from now as it is today. In other words, we have set the federal budget on a stable course for the next decade.
But while we were busy addressing budget concerns, we have allowed the more immediate economic challenges of slow growth and high unemployment to go mostly unaddressed. Consider this set of facts: relative to projections made in 2010, our deficit has been cut in half, but the unemployment rate remains a full percentage point above where we thought it would be by now, the total size of our economy is about 5 percent smaller than we thought it would be and interest rates today are about half what was expected. Everything about today's economic and fiscal conditions screams out for a change in emphasis away from deficit reduction and towards jobs creation.
The spectacular failure of austerity policies in Europe serves as a powerful reinforcement to this point. Three years ago, many argued that the only way out of the fiscal and economic challenges facing much of Europe — as well as the United States, to some degree — was to implement dramatic and immediate fiscal contraction, especially in the form of spending cuts. Austerity, we were told, would not only reduce the debt, but it could even jumpstart economic growth. Needless to say, austerity failed to deliver on either count.
In the United Kingdom, despite the largest cuts in government spending in sixty years, debt projections have gotten worse, not better. In Greece, they have cut real per capita spending by 22 percent, and yet, because the cuts sent their economy into a tailspin, they have made little overall fiscal progress.
And while the United States has so far avoided austerity measures on the same scale of those implemented in Europe, we haven't escaped entirely unscathed. Over the past three years, real per capita federal spending has declined by a larger percentage than at any time since the demobilization after the Korean War. If you are looking to find a culprit for our unusually sluggish recovery, this is a good place to start.
Long-term fiscal sustainability is still an important goal. But the last three years have taught us that Washington isn't very good at focusing on more than one economic challenge at a time. We have succeeded in putting the federal budget on far more sustainable footing. Now it's time to turn our attention to rebuilding the middle class, boosting job creation and spurring faster growth.
About Michael Linden Managing Director for Economic Policy at the Center for American Progress
Gordon Gray Director of Fiscal Policy at the American Action Forum