The conversation in Washington continues to focus on deficit reduction, even in the face of sluggish economic growth and unemployment continuing to be painfully high. The argument in favor of immediate deficit reduction, however, has lost nearly all of its standing, as revealed in a new report by the Center for American Progress’s Michael Linden.
Three years ago, those pushing austerity and deficit reduction pointed to dire warnings about the budget outlook. That picture has since changed dramatically. In fact, the projections look pretty good:
A big driver of improved budgetary prospects is a better outlook on health care spending, given its large share of the budget. Spending now looks like it will rise far less dramatically than it was thought just years ago:
Meanwhile, the arguments supporting austerity have crumbled. Lawmakers pushed drastic cuts to government spending in the name of promoting growth, but Europe’s journey down this path has offered first-hand evidence of how much they can do the opposite. The example of the U.K. has been particularly pronounced, as the country has just narrowly avoided a triple-dip recession. At the same time, its debt levels have risen dramatically, failing to meet the goals of implementing austerity:
The United States at first avoided austerity, opting instead to meet the initial recession with a stimulus package that warded off some of the worst effects. Since then, however, it has turned to its own austerity measures, enacting about $2.5 trillion in deficit reduction, three-quarters of which has been spending cuts. Government investment is in fact headed to historically low levels:
And since those cuts began, the economy has failed to recover as quickly or robustly as was projected:
Sequestration has been the latest and perhaps most drastic cut to spending, given its automatic and across-the-board nature. But the argument that sequestration is necessary to keep the deficit under control doesn’t hold up, since the outlook would be even better if Congress just got rid of them:
BONUS: So what should the U.S.’s fiscal policy be instead? Some have called for government borrowing to fund infrastructure projects and other investments that could help fuel a more robust economic recovery. And it turns out interest rates on government bonds are unusually low: