Here’s the buried lede from the Congressional Budget Office, which on Tuesday released its Budget and Economic Outlook for the coming decade: D.C.’s deficit obsession has been quite effective at cutting deficits at the expense of the still-struggling economy.
“[E]conomic activity will expand slowly this year, with real GDP growing by just 1.4 percent,” according to CBO’s projections. “That slow growth reflects a combination of ongoing improvement in underlying economic factors and fiscal tightening that has already begun or is scheduled to occur-including the expiration of a 2 percentage-point cut in the Social Security payroll tax, an increase in tax rates on income above certain thresholds, and scheduled automatic reductions in federal spending. That subdued economic growth will limit businesses’ need to hire additional workers, thereby causing the unemployment rate to stay near 8 percent this year, CBO projects.”
In other words, intentional efforts to reduce annual deficits and stabilize the debt are working. But if you retrain your gaze from the government’s balance sheet to the real economy, you’ll see the impact of that austerity is fewer people working and slower growth. According to CBO, the recovery won’t really pick up steam until next year, and the economy won’t have recovered until the end of 2017, when it will reach its output potential, and unemployment will fall to 5.5 percent.
CBO notes that the U.S. hasn’t experienced six consecutive years with unemployment exceeding 7.5 percent in over 70 years.
So if you cut spending, you slow economic growth. This shouldn’t surprise anyone who actually understands the principles of supply and demand, since slashing spending means slashing demand. Still, Republicans like to argue that cutting spending is the super-responsible thing to do in a struggling economy because… Well, they don’t often get to the “because.” It’s just because, so shut up already. If they were forced to take truth serum, we’d find out that it’s because Barack Obama says the opposite.
You might remember a Commerce Department report last month that showed a drastic decrease in defense spending was responsible for unexpectedly slow job growth — again, cutting spending = cutting demand = hamstrung economic growth.
As always, reality has a liberal bias.
