Debt Crisis Deniers in the Ascendancy on the Hill
When are trillion dollar deficits not an "immediate crisis ? When the deficit as a percentage of GDP goes back to "normal" levels.
That's the reasoning of a growing number of Democrats on Capitol Hill who want all this budget cutting nonsense to stop so they can go back to good old fashioned deficit spending in order to "stimulate" the economy.
Fueled by some outside commentators like the New York Times' Paul Krugman who believe there is no immediate debt crisis, a growing number of Democrats are resisting more budget cuts, believing that slashing government spending slows the economy.
A column by Ben White and Tarini Parti in Politico looks at the growing number of Democrats who believe "austerity" has run its course and the time is now to increase spending as a stimulus to get the economy growing faster.
It should be noted that many of the Democrats mentioned in this article are not far left liberals. And the authors point out that even some conservative think tanks have issued papers recently urging caution in cutting more from the budget.
These Democrats and their intellectual allies once occupied the political fringes, pushed aside by more moderate members who supported both immediate spending cuts and long-term entitlement reforms along with higher taxes.
But aided by a pile of recent data suggesting the deficit is already shrinking significantly and current spending cuts are slowing the economy, more Democrats such as Virginia Sen. Tim Kaine and Maryland Rep. Chris Van Hollen are coming around to the point of view that fiscal austerity, in all its forms, is more the problem than the solution.
This group got a huge boost this month with the very public demolition of a sacred text of the austerity movement, the 2010 paper by a pair of Harvard professors arguing that once debt exceeds 90 percent of a country’s gross domestic product, it crushes economic growth.
Turns out that’s not what the research really showed. The original findings were skewed by a spreadsheet error, among other mistakes, and it’s helping shift the manner in which even middle-of-the-road Democrats talk about debt and deficits.
“Trying to just land on the debt too quickly would really harm the economy; I’m convinced of that,” Kaine, hardly a wild-eyed liberal, said in an interview. “Jobs and growth should be No. 1. Economic growth is the best anti-deficit strategy.”
And the intellectual shift away from austerity is not just coming from the left.
The conservative American Enterprise Institute issued a paper last week saying Congress has already achieved enough deficit reduction for now. Other organizations not typically associated with free-spending liberalism, including the International Monetary Fund and Goldman Sachs, have cautioned that the austerity movement — which favors rapid reduction of national debt — may be worsening Europe’s economic problems and slowing down the U.S. recovery, as well.
“American fiscal austerity has been moderate and probably, at the current pace of deficit reduction of about $300 billion per year over the next half decade, has proceeded far enough for now,” AEI scholar John Makin wrote last week.
Does cutting the budget cause a slowdown in growth? As we all know, Washington isn't "cutting" anything, but rather reducing the rate of growth in government programs. In the sense that the "normal" growth in spending for a government program is cut back slightly, it may affect certain procurement programs like weapons purchases. This would indeed be a loss of economic activity and thus put a damper on the economy.
Regardless of any justification for cutting spending by scholarly papers, the need to cut the budget and cut it now is a necessity. What Krugman and other "stimulus" advocates never mention is the politics of budget cutting, which is not concerned with the numbers of deficit reduction as much as it is with the art of the possible in negotiating a fix for our short and long term deficit problems.
Does anyone seriously believe if we get back to robust growth in the economy -- 4% or more -- that the political will to deal with our long term debt problems, our entitlement problems, and further deficit reduction will exist? It isn't so much that the deficit and debt are "immediate" crisis in the sense that unless we balance the budget by next year, the economy will collapse. But once the economy improves, and revenue begins to recover, the need for deficit reduction disappears and Congress will go back to business as usual.
That's the political reality. Without a spur to their behinds, Congress won't deal with our debt and deficit problems. And that spur -- uncontrolled deficits and a continual increase in our national debt -- will disappear once the good times are rolling again.