Kenneth P. Thomas is professor of Political Science and fellow in the Center for International Studies at the University of Missouri-St. Louis. He is the author of "Competing for Capital: Europe and North America in a Global Era" and "Investment Incentives and the Global Competition for Capital." He blogs at Middle Class Political Economist.
On May 14, the Congressional Budget Office revised its deficit projection for fiscal year 2013 (which ends September 30) downward by $200 billion from its February estimate. Instead of an $845 billion shortfall, the new estimate is for only a $642 billion deficit, down from $1.1 trillion in 2012 and only 4 percent of gross domestic product.
While groups like Campaign to Fix the Debt tell us we need to obsess over a rising trend in the debt 10 years from now, we have more pressing things to worry about now. The unemployment rate got only as low as 7.5 percent last month, down from its peak of 10.0 percent in October 2009. The employment/population ratio, perhaps a better measure of the total employment situation, was just 58.6 percent in April, down from its December 2006 peak of 63.4 percent. We need jobs now!
For that reason, the fall in the deficit isn't good news at all. As long as people continue to try to pay down their debts, someone else has to be willing to spend money and fix our $1 trillion a year output gap – and that someone is government. That means, for now, that we need bigger and not smaller deficits.
Don't tell that to the austerity crowd: they aren't listening. But the evidence is there for those willing to see.
As Alan Pyke observes at ThinkProgress, the Eurozone remains mired in recession with an all-time record unemployment rate of 12.1 percent. The world's biggest experiment in austerity is a manifest failure. Not only has the economy shrunk and unemployment risen, austerity policies have not tamed the debt/GDP ratios in the Eurozone, as (except for Greece, which received some debt forgiveness) falls in economic growth have outpaced deficit reduction. The tragic irony, as Pyke points out, is that the United States is now on a path to record a bigger percentage fall in its budget deficit from 2009 to 2013 than the European Union is (60 percent vs. 55 percent).
The scaremongers of the austerity crowd like to say that if our deficits continue, we'll turn into Greece. The fact is, if we follow their advice, that's just what will happen – but in terms of unemployment, not debt. Of course, we would not hit Greece's current unemployment rate of 27.2 percent, or anything like it, but even heading back toward 10 percent would multiply the human disaster that has accompanied our too-early abandonment of stimulus policies.