The 'economics of austerity'—which includes the continued Republican argument that government spending is a drain on both employment figures and economic growth and must be constantly curtailed—is killing the prospect of improved U.S. prosperity.
That's the finding of a new study by the Center for American Progress based on new figures released by the Congressional Budget Office.
According to Harry Stein and Adam Hersh, economists at CAP and the authors of the study, members of Congress in both parties have allowed for the economy to be "severely damaged" over the last several years by passing "deep spending cuts in a misguided attempt to solve a short-term debt crisis that simply does not exist."
What's most troubling, argue Stein and Hersh, is that the impacts of the "deficits are bad" and "spending is bad" mantra will have long-lasting impacts on the economy as the lack of investment strangles the future potential of the economy.
To understand the impact of spending cuts on the overall economy, we can look at CBO’s changing estimates of potential GDP in the first quarter of 2014 and its estimate for potential GDP at the end of 2020. Relative to CBO’s estimates made in 2010 about the state of the economy, its most recent estimate shows growth of the U.S. economy’s supply-side potential is $351 billion smaller now after three years of spending cuts. CBO estimates also indicate the potential future growth path for the U.S. economy decreased by $633 billion through the end of 2020, following the austerity-burdened recovery.
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Austerity is moving this key metric in the wrong direction, and CBO’s report shows this policy choice is costing the U.S. economy dearly. CBO forecasts for potential GDP fell as austerity took hold, illustrating the painful and unnecessary costs of cutting spending on public investments, education, nutritional assistance, emergency unemployment insurance benefits, and more. These humane economic policies would be a textbook response that provides targeted fiscal stimulus in a downturn to deliver a strong, stable recovery.
After this latest CBO report, it is clearer than ever that our ongoing experiment with austerity has failed, and it is long past time for Congress to focus on growing the economy instead.
As the Huffington Post notes:
Budget cuts have probably helped bring down the long-term debt outlook a bit. But an improving economy has helped much more, by raising tax revenue and dramatically shrinking the government's annual budget deficit.
The CAP study is the latest in a series of studies tallying the costs of austerity. The long and short of it: Less austerity in the short term would have meant more growth, less unemployment and an even faster-shrinking deficit in the long term.