Since the 2013 federal deficit was calculated to be a five-year low of $680 billion, many media voices have incorrectly proclaimed victory over deficit concerns, at least in the short run. One of those voices is Eduardo Porter at The New York Times.
Porter’s inaccurate claims are numerous. This post will focus on two. First, how Porter’s argument that austerity measures have been implemented in the United States ignores reality. Second, how his claim that “austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt” ignores the long-term benefits of budget cuts.
First, there has been no austerity in America. The federal budget has gone up by almost $800 billion from fiscal year 2007 (the year before the recession started) through fiscal year 2013. It has gone down since 2009, but only by approximately $30 billion. A $30 billion cut—largely because of lower spending on unemployment benefits and war, as the economy has improved and the U.S. has transitioned out of Iraq and Afghanistan—is hardly “austerity.”
As a related side note, Porter criticizes tax increases and spending cuts as “austerity” measures, but focuses a great deal more attention on spending cuts—cuts that simply haven’t happened since the recession started.
Interestingly, Porter cites the International Monetary Fund (MF) for his 2009 to 2014 austerity claim—that two-thirds of U.S. deficits on all government levels will disappear in that five-year period. However, not only does he fail to cite a specific report, leaving readers guessing, but aGlobal Finance Magazine article citing a December 2012 IMF report shows America’s deficit will drop by approximately 56 percent, not the two-thirds Porter claims, over that time period. On a scale of trillions of dollars, being off by 10 percent is quite a significant error.
Moving on, Porter’s claim about short-term harm to the economy via austerity ignores the medium-term and long-term economic pictures. CBO’s February projections estimate that implementing $4 trillion in spending cuts over a decade as compared to increasing spending by $2 trillion (a $6 trillion difference in spending) over the same time period would harm the economy in the immediate short term, but leave it much, much stronger in future years.
Related, Porter’s claim about economic harm as a result of aggressive budget cuts and/or entitlement reforms sidesteps how the economy is being hurt right now by high national debt. Given that harm, and the size of America’s debt, the deficit—which is the annual negative difference between revenues and expenses—should be eliminated, not diminished. This would shrink America’s debt-to-GDP ratio quickly, thus improving America’s ability to actually grow and provide economic benefits to all Americans, not just the wealthy and those with Washington connections.