The Center for American Progress released a useful report today, the basic message of which is: The fiscal picture – the projected course of our deficit and debt – has changed dramatically since 2010, so the terms of the corresponding policy debate should change as well.
To wit: In the last three years the U.S. government has enacted $2.5 trillion in deficit reduction at a time when some of the big deficit drivers – specifically federal healthcare spending – have leveled off. And oh yeah, we also had an election where the austerity side was soundly defeated. Nevertheless policy discussions remain mired in the terms of 2010 with more focus on supposedly "out of control" spending than moribund job creation and wage growth. That's why we're going to spend some portion of the summer and fall arguing about more deficit reduction at the expense of dealing with jobs.
But as these charts, courtesy of the Center for American Progress report, illustrate, the outlook has changed dramatically. Take these two:
You can see that while both deficit and debt were expected to rise steadily in the medium term, both are stabilized under current projections. And keep in mind that the Center calculations assume – not necessarily realistically, in my view – that the sequester is going to be repealed. How'd we get here? Start with four rounds of spending cuts and layer in this year's hard-fought tax increases on the wealthy. In terms of the spending, for example, keep this chart in mind the next time you hear that spending is out of control:
Real per capita federal spending has fallen faster than at any time since the Korean War, more than a half-century ago.
Another important key to the changing fiscal outlook is the fact that health costs have leveled off:
Here's the kicker chart: Given current economic conditions, even if we repealed the sequester lock, stock and barrel, we'd be doing better in terms of deficit reduction than we would have expected to three years ago with sequestration in place. "In a rational world we'd just get rid of the sequester," said Michael Linden, the Center's managing director for economic policy. "Unfortunately we don't live in that world quite yet."
For the most part this data isn't new, but there's a lot of utility in wrapping it all together and putting it in one place, which the study does, leavening it with a review of the recent history of austerity from the Reinhart-Rogoff fiasco to Europe's unhappy experiences. Here's my favorite austerity statistic of the day, from the report:
Over the past several years, Greece repeatedly imposed ever-more dramatic austerity measures ... The end result is that in 2012, real government spending per person in Greece had fallen by more than 22 percent since 2009. And yet government spending measured as a share of gross domestic product was actually higher in 2012 than it was in 2009.
None of this is to say (and the folks at the Center for American Progress make pains not to say) that the long term fiscal issues have been taken care of. But we need to be able to distinguish the short- from the medium- from the long-terms and prioritize short-term policy.
It's important to keep these facts front and center as we head back down the debt-ceiling-hostage-hole in a few months. Spending isn't the problem – jobs (or lack thereof) are. It would be nice if the debate accorded with the reality, but it probably won't happen. As Jared Bernstein writes today, "that debate is impenetrable to such changes for the simple reason that the ideologues driving the debate use facts the way a drunk uses a streetlamp: not for illumination, but for support." It's just too bad those drunks are driving the country.