Budget “Austerians” And Deficit Hawks Won’t Face The Facts

Today’s Liberal Beef?  It staggers my imagination to think of how much more solid the U.S. economy’s recovery would be if not for the damned “austerians”, or Tea partiers as they prefer to be labeled—and boy do they LOVE labels– were not such suckers for the panderers and deficit-obsessed.

According to the latest forecasts, both here (the non-partisan Congressional Budget Office) and abroad, the US budget deficit will shrink to 4% of GDP this year. That’s right, the budget deficit is actually shrinking despite their wails of doom and gloom.

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists think is advisable for the health of the economy.

The slide from 2009’s 10.1% budget shortfall is one in the eye for the Tea party and any other advocate of “contractionary expansion”. Even the name illustrates the ridiculousness of its foundation.

Worse for the fans of austerity, forecasts published by the US congressional budget office expect the deficit to fall to 2.1% of GDP by 2015 as tax revenues soar.

By comparison, the UK’s official forecaster, the Office for Budget Responsibility (OBR), expects a budget deficit on a Maastricht treaty basis of 7.6% this year. Not until 2017 will it fall below the Maastricht maximum of 3%.

Even US Federal Reserve Chairman Ben Bernanke warned Wednesday that tightening monetary policy now could stall the US recovery, but added that another few months of positive data could lead the Fed to start reining in stimulus. Defending the Fed’s continuing stimulus, Bernanke told Congress that US economic growth continues at a moderate pace with no threat of inflation or, as some analysts have worried recently, deflation.

On the other hand, he stressed that still-high joblessness and the drag on growth of federal spending cuts continue to justify the Fed’s aggressive bond-purchase policy aimed at keeping longer-term interest rates low.

And lest we forget, let’s keep in mind that Bernanke is not a Democrat, liberal or otherwise. The former Princeton professor, who was appointed to the Fed by George W. Bush and briefly served as Bush’s chief economic adviser, has always been considered a Republican. Yet even HE said ENOUGH WITH THE AUSTERITY ALREADY!!

Still the Blockheads on the Right Seek Spending Cuts

Despite growing mountains of evidence–in real time no less—in the 17 eurozone countries, and the UK, that spending cuts are exacerbating the precipitous downward spiraling economies under the austerity plans instituted in their countries, U.S. conservatives still insist that spending cuts should be instituted in this county.

How much proof do Americans need to see that more cuts would mean that the U.S. is joining the race to the bottom of the economic heap at full speed?

Greece and Spain recorded the highest unemployment rates in the eurozone, at 27.2% and 26.7% respectively, with an overall 17-country average of 12.1%. Youth employment, defined as those under 25, hit 3.6 million in the eurozone. In Greece, 59.1% of under-25s were unemployed as of the end of January, while in Spain, 55.9% were unemployed.

The Obama administration was regularly battered by critics who said the deficit would balloon without massive budget cuts. The president resisted much of the rhetoric and put in place a stimulus plan. It was weaker than economists such as Paul Krugman and Joseph Stiglitz wanted, mainly because constitutionally required cuts in local state spending went ahead regardless. But it was still a stimulus plan and by last year it was helping millions of workers find jobs and this year is making serious inroads into the deficit.

Trevor Greetham, a director at Fidelity Worldwide Investment , congratulated the president on his strategy.

“The anti-austerity camp will get a boost today,” he said. “It is increasingly clear that the Obama administration was right to put off fiscal tightening and focus reforms in the medium to long term.” America is growing its way out of debt. The deficit is shrinking because tax revenues are coming in better than expected and a rise in house prices has seen the two government-sponsored lenders, Fannie Mae and Freddie Mac, repay some $95bn to the Treasury.

And yet, the Nay-sayers and chicken-littles continue to press on with, “You just wait, the Fed keeps printing money and we gonna see some damn inflation that’ll make yawl squirm like a worm on a hot brick”.

Of course inflation, growth, contraction, etc., are all emblematic of economic cycles. They always have been. I suppose if they say it long enough it actually will happen; we will see some inflation, but it will not be for the idiotic reason of “printing money by the Fed”.

Economies (macro-economics) of well-run countries are not tied to political whims. They are like Mother Nature. They have  minds of their own and take inexplicable twists and turns. A well-run economic policy is flexible, alert to changes and adapts with the correct economic reasons to the changes, not political reasons. Just like with Mother Nature, the best we mere humans can do is plan, prepare, and act based on the best knowledge we have at hand.

Instead, we listen to commentators, pundits, “news” analysts, or politicians who have vested interests in saying what one political faction or the other wants to hear.

What We Have is Representation Without Affirmation

How much easier could it be to look across to the UK and Eurozone and see what spending cuts during a recession or recovery causes? A simple affirmation of their duty to do what is best for the country, not for themselves is all that needed.

“The good US fiscal performance stands in stark contrast to the UK, where front-loaded spending cuts and tax rises have hurt the economy and caused a shortfall in government revenues. The OBR expects the deficit to shrink to a manageable level by 2017 but this forecast, like all of the previous ones, relies on sustained economic expansion of 2-3% a year. It is hard to believe this level of growth will be achieved especially as next month will see another year of cuts tacked on the end of what has become a rolling five-year austerity plan.”

Greetham is one of the few City investors to say loudly and consistently that austerity was the wrong medicine. In 2011 he contradicted George Osborne’s message that the UK was like Greece. He said then it was more like the US and should adopt the same remedy.

And Japan is moving in the same direction. Even now Tokyo is looking to boost government spending by 2% to 3% as it seeks to generate growth and reduce its almost perpetual 10% annual deficits. Alongside this plan is the expansion of the money supply by the Bank of Japan, which together with the spending boost will be the ultimate test of the Keynesian answer to their own slump.

And yet as sure as the night splits the day, millions of Americans will continue to believe the Hannitys, the Limbaughs, and the Palins of the country over the Krugmans, the Stiglitzs or the myriad other actual experts on economics.

I do not understand it. And I hope I never do.

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