Former President Bill Clinton today warned House Democrats about embracing austerity as a solution to the U.S.’s economic woes. “Everybody that’s tried austerity in a time of no growth has wound up cutting revenues even more than they cut spending because you just get into the downward spiral and drag the country back into recession,” he said.
For evidence, House Democrats can gaze across the Atlantic at the United Kingdom, where austerity has put the country on the brink of a triple-dip recession, while doing next to nothing to reduce its deficit. According to the latest budget projections from the Institute for Fiscal Studies, a London-based independent think tank, the UK will be borrowing £65 billion more next year thanks to austerity’s dampening effect on growth:
A significant part of the downgrade in official forecasts has come in the last two years. In response, further spending cuts have been pencilled in for after 2014–15 — the end of the current spending review period — to offset fully the increase in forecast structural borrowing: but not until 2017–18. A worse economic outlook since November 2010 has pushed up borrowing forecasts for 2014–15 by £65 billion. Mr Osborne has chosen to offset only £1 billion of this. In this sense, he is running looser fiscal policy over this parliament than he intended back in 2010. [...]
Our baseline public finance forecast shows a more than 50:50 chance that (on a like-for-like basis) borrowing this year will be higher than it was in 2011–12.
As the New Yorker’s John Cassidy put it, “In short, the U.K. experience shows how austerity policies, when applied without regard to the state of the economy, often lead to more government borrowing and debt creation, not less. In the past few years, we’ve seen pretty much the same thing happen in other European countries: Greece, Ireland, Portugal, and now Italy and Spain.”
The U.S., instead, opted for stimulus in 2009, and has returned to slow growth. But unless Congress prevents it, there is a healthy dose of austerity for the U.S. right around the corner.