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Hullabaloo


Wednesday, October 03, 2012

 
We've had austerity lite whether we want to admit it or not

by digby

I've been detecting quite a bit of smug, self aggrandizement coming from certain Democratic quarters about the brilliance of the stimulus and how it deftly avoided all the problems that Europe and the UK are facing with their harsh austerity programs. It's a nice story and there's no doubt that the US dodged the UK bullet but there's no doubt that the administration has not only been talking up austerity since they came into office, they've actually enacted it. Here's Dday:

Jared Bernstein of the Center on Budget and Policy Priorities has an important piece that reinforces something I’ve been saying for a long time. Contrary to the opinion of Michael Grunwald that there has been no austerity in Obama’s first term, Bernstein lays out the numbers that actually shows the austerity, in both the short- and long-term, that actually encompasses most of what deficit scolds seek in their grand bargain. And this is actually a bad idea, as Bernstein illustrates.
These developments are poorly understood by those—most vocally, SB advocates—who continuously inveigh that we’re not “serious” about cutting spending. In fact, that’s the only thing we’ve been “serious” about so far, such that we’ve actually achieved 70% of the discretionary spending cuts called for in the SB budget plan. This does not count war savings, nor does it include savings on interest payments, which would add another $250 billion to the savings.
Bernstein references this paper by Richard Kogan of CBPP, which lays out the deficit reduction deals already put in place by Congress and the President, both from the 2012 budget deal and the Budget Control Act (i.e. the debt limit deal). This generated $1.5 trillion in discretionary spending cuts between 2013-2022, as part of a spending cap that President Obama is unlikely to violate as long as he’s President. And Kogan writes that, while 2/5 of these cuts come from defense, “These reductions will shrink non-defense discretionary spending to its lowest level on record as a share of GDP, with data going back to 1962.”

Take a look at this:


This proves, I think, just how far down the rabbit hole we've become. Alan Simpson doesn't even know that his program has largely been enacted and neither do the highly respected chroniclers of the era, who all insist that we have been on a Keynesian dream trip and that everything's going as well as anyone could hope for under the circumstances.

I don't know if that's true. Nobody does. But the fact is that we've been undergoing a "soft" austerity from the very beginning cushioned with a temporary bump in spending that turned out to be inadequate. That's it. (And yes, Ben Nelson is a jackass who ruins everything, we know that.)

Dday concludes:

Bernstein furthermore explains that this insistent deficit reduction, the result of a successful House Republican gambit to focus on public spending, is a bad, bad idea.

Finally, I’ve said it before and I’ll say it again. What is so damn great about cutting the heck out of non-defense discretionary spending? Clearly, we want to evaluate their effectiveness, but in an age of increased inequality and diminished opportunity and mobility among the least advantaged, many of the programs in this category should be expanded (help with college assistance, Head Start, job programs and job training). Simply cutting for the sake of optics without regard to social need and economic context is not the way forward.

That’s exactly right. And the trolling from these fiscal scolds, which has buy-in across the political spectrum, created this false need to cut, with dire potential effects on the economy.

(Incidentally, Bowles-Simpson masked its tax increases through differing baselines and shrunken budget windows; when Republicans see the true implications, they’ll run screaming.)

Paul Ryan did run screaming, you'll recall. He refused to sign on to Simpson-Bowles and according to daffy Uncle Simpson, it was because of the proposed "revenues."

I would just add that the fiscal scolds Dday mentions include those in the White House who scheduled a "fiscal summit" one month after he was inaugurated:

February 14, 2009
Obama to Shift Focus to Budget Deficit

By JONATHAN WEISMAN

With a $787 billion stimulus package in hand, President Barack Obama will pivot quickly to address a budget deficit that could now approach $2 trillion this year.

He has scheduled a "fiscal-responsibility summit" on Feb. 23 and will unveil a budget blueprint three days later, crafted to put pressure on politicians to address the country's surging long-term debt crisis.

President Barack Obama, left, meets Deere CEO Robert Lane at White House Friday. Obama defended his stimulus plan before business leaders.

Speaking Friday to business leaders at the White House, the president defended the surge of spending in the stimulus plan, but he made sure to add: "It's important for us to think in the midterm and long term. And over that midterm and long term, we're going to have to have fiscal discipline. We are not going to be able to perpetually finance the levels of debt that the federal government is currently carrying."

Along those lines, White House budget director Peter R. Orszag has committed to instituting tougher budget-discipline rules -- once the economy turns around. Those include a mandate that any "nonemergency" spending increases be offset by equal spending cuts or tax increases.

Officials say the budget blueprint to be released this month will also attempt to make public the full extent of the dire fiscal situation, by not repeating some of the accounting used in crafting President George W. Bush's budgets. Recent budget blueprints excluded from deficit projections the long-term costs of wars in Iraq and Afghanistan. Those budgets also didn't include the cost of preventing the alternative minimum tax -- instituted in 1969 to ensure the rich didn't escape taxation -- from hitting the middle class.

Officials are examining whether to include those costs. The budget will project out 10 years, not the five-year forecast instituted by Mr. Bush. And with the stimulus cost, the fiscal 2009 deficit in the document is likely to exceed the $1.2 trillion forecast by the Congressional Budget Office last month.

Obama aides say they aren't looking for quick action, but a start to the conversation. "We're going to bring some things to the table, but we're going to listen to everybody else," said Christina Romer, chairman of the White House Council of Economic Advisers, in an interview Friday. "It's a giant issue, and it's not one we can solve unilaterally."

The president met with 44 fiscally conservative "Blue Dog" Democrats this week and gave a nod to legislation that would set up commissions to deal with long-term deficit strains. The commissions would then present plans to Congress for an up-or-down vote.

"We feel like we've found a partner in the White House," said Rep. Charlie Melancon (D., La.), a Blue Dog co-chairman.

They ended up postponing the summit until the next year  but they passed plenty of these measures in their budgets over time, as Bernstein points out. And once health care was passed they made the famous public "pivot" to hard sell on deficit reduction.

And our slow growth and high unemployment is a testament to just how well it worked.

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