Economists Argue Against Deficit Reduction

Today, more than 300 economists and policy experts released a letter warning that “the still-fragile economic recovery will be undercut by austerity economics of the kind being pushed by conservative politicians and by the Deficit Commission.”

The group argues that President Obama and Congress should press for legislation to create jobs, including infrastructure investment, state aid and public-service jobs programs — and should ignore calls for immediate cuts to reduce the deficit and start bringing down the national debt.

On a call with reporters, Robert Borosage, the head of the Institute for America’s Future and an author of the letter, argued that “to constrict spending will not only deepen the stagnation and spread the misery, it will ironically fail to reduce the deficit.” Unless the economy starts moving again towards full employment, any efforts at deficit-reduction will falter, he said.

He argued that austerity plans, such as Rep. Paul Ryan’s (R-Wis.) Roadmap for America’s Future, assume a return to economic growth and a drop in the unemployment rate — changes that have not yet happened. Deficit reduction would hamper growth and worsen joblessness, as the government would essentially withdraw demand from the economy before regular consumers and businesses started providing it. Plans such as Ryan’s fail to “address the remaining gaps” and kick-start growth, Borosage said.

Dean Baker, an economist and the co-chair of the Center for Economic and Policy Research, agreed, noting that deficit hawks have pushed “a narrative through this downturn that is 180 degrees from reality.” The economy needs more demand and more jobs from somewhere, and absent demand from other sources, the government should give it. He and others argued for Congress to focus on things like infrastructure investment, rather than slashing the federal budget. “Anyone with a whit of business sense” would know now — given the low interest rates and a enormous pool of construction workers idled — is a good time to build.

Former Labor Secretary Robert Reich also argued “the right way to approach and address long-term deficits” is growth. He noted that the country is “not just in danger of a double-dip recession, but we are not getting out of the doldrums at all.” Economists expect “rapid economic growth” after a deep recession. That growth has not happened.

The Obama administration has in recent week proposed a series of measures to gin up growth and jobs — including a new infrastructure package. And policymakers within the White House certainly would like to push for much bigger, more expensive bills. The problem is Congress — and specifically the Senate. No measure that cannot overcome a Republican filibuster by winning a Republican cross-over vote will pass. And Republicans thus far have proved intransigent on most spending measures, insisting on deficit-neutral bills and eschewing the idea of big spending programs.

That said, Republicans aren’t exactly focusing on deficit reduction either. This week, Sen. Mitch McConnell (R-Ky.), the minority leader, proposed a $4 trillion tax cut, without naming where he would cut the budget to pay for the bill.