Does Austerity Work? Senate Panel Discusses the Impact of Deficit-Reduction Policies

Murray and Summers said putting the nation’s 11.6 million jobless workers back to work should be the country’s primary concern. They supported government spending on infrastructure, saying it would boost demand and make the U.S. more competitive for years to come.

Murray authored the Senate’s most recent budget proposal, the first budget the Senate has passed in four years. Her plan for the 2014 budget, which passed in the Senate on a 50-49 vote, calls for a trillion dollars in tax increases and eliminates the automatic spending cuts required by sequestration. This proposal, along with the House version and the president’s, will likely be used as a basis for future negotiations between the parties.

“I have long believed that the case for austerity during times of economic weakness has been fundamentally flawed. When demand falls off in the private sector and millions of workers are losing their jobs, I think the last thing government should do is make things worse by slashing, spending, and causing aggregate demand to drop even further,” Murray said.

Murray also criticized House Republicans for trying to shift funds from non-defense programs to keep defense spending at pre-sequestration levels, which the senator believes is in violation of the bipartisan Budget Control Act – the law mandating the sequester.

Sen. Jeff Sessions (R-Ala.), the committee’s ranking Republican, accused Democrats of not being serious about reducing the deficit. Sessions said Democrats are using tax increases to fund new spending, instead of focusing on shrinking the deficit.

The hearing’s highlight came when Sen. Sheldon Whitehouse (D-R.I.) questioned Furth’s testimony, calling it “meretricious.”

Whitehouse said that Furth’s claims about OECD numbers are largely the opposite of the figures from the OECD itself. This, according to Whitehouse, is a distortion of the results and makes it seem as if tax hikes far exceeded budget cuts in some European countries.

“I am concerned that your testimony to this committee has been meretricious," Whitehouse told Furth. "I am contesting whether you have given us fair and accurate information."

Sessions offered Furth a chance to respond to the committee, but he declined by saying that the tenor there was not conducive to a productive discussion.

Furth responded to Whitehouse’s comments on Wednesday by clarifying that while his data is of past actions, the majority of Whitehouse’s information is for expected budgetary actions based on data projections.

“Of the spending cuts and tax increases Senator Whitehouse referred to as ‘what took place in Europe,’ the vast majority were only projections at the time his data were published. In the median country, 90 percent of the planned spending cuts were still just plans. Senator Whitehouse does not know whether those plans will be faithfully adopted, and either way, those data have little bearing on what occurred over an earlier—historical—time frame,” Furth wrote.

New York Times columnist Paul Krugman chimed in on Whitehouse’s tough remarks about Furth’s testimony.

“OK, this is really shocking: a Heritage Foundation economist has been accused of presenting false, deliberately misleading data and analysis to the Senate Budget Committee. What’s so shocking? Not the false, misleading data and analysis — that’s [standard operating procedure] at Heritage. ... What’s shocking is that they got called on it,” Krugman said.