House Majority leader Eric Cantor asserts the deficit is growing, using that as the rationale for further cuts in federal spending. In fact, as reported by the Congressional Budget Office, the deficit is falling steeply, to less than half of what it was as a proportion of GDP in 2009.
This continued deception by Republicans as a means of advancing their obsession with fiscal austerity is doing the opposite of what it claims. Across the board, corporate, academic and government economists are telling us that job growth, economic recovery and longer-term prosperity are being hindered by cuts in government spending.
The Federal Reserve was uncharacteristically blunt when it said “fiscal policy is restraining economic growth.” The Federal Reserve Bank of San Francisco reports that fiscal policy has become “unusually contractionary.” It estimates that growth could be reduced by as much as 1 percentage point annually over the next three years if current policies continue.
The International Monetary Fund believes the sequester has put a “heavy toll” on short-term growth, and that its “indiscriminate” cuts in investment-oriented spending could reduce longer-term economic growth.
As reported in The New York Times, Bank of America Merrill Lynch told its clients that “fiscal drag has likely reduced growth this year at least 1.5 percentage points, and isn’t over yet.” The chairman of the Economic Advisory Committee of the American Bankers Association stated “greater-than-expected fiscal drag…could still pose downside risks.”
Princeton economist and Nobel laureate Paul Krugman has reported extensively on the fallacy of austerity policies, noting that “any fiscal savings come at the expense of reduced output and higher unemployment.” Calling austerity in the current environment “a terrible idea,” Krugman explains that contractionary policy “may inflict long-run economic damage that actually worsens the long-run fiscal position.”
Despite this, Republicans are gearing up once again to use debt ceiling negotiations to blackmail the Obama administration into further spending cuts, mostly at the expense of the less advantaged. At significant cost to the recovery, Democrats have already made major concessions on spending.
Tax and entitlement reform are necessary to long-term economic growth, but in the short run, stimulus is what’s needed, not austerity. It’s time to listen to the experts, and stand firm against the destructive Republican economic agenda.