During Tuesday’s joint Super Committee hearing on the origin and drivers of U.S. debt, Republicans were eager, as they are in many settings, to portray the country as on the brink of a genuine debt crisis — and to argue that the most effective remedies to a debt crisis are spending cuts, not tax increases.
This sounds like bland political pabulum, and in some ways it is. But it’s also a huge reveal. If we’re not in a fiscal crisis, and we thus have years of running room ahead of us to make appropriate, and non-drastic policy changes, then there’s no immediate imperative to make the dramatic changes to Medicare and other popular government safety net programs Republicans want to see.
Here’s how CBO director Doug Elmendorf responded when Sen. Rob Portman (R-OH) nudged him about the relative merits of cutting spending (i.e. rolling back government services) as part of a national austerity program.According to economists, “in countries that really set out to do fiscal austerity, the results tend to not be good in the short term,” Elmendorf said. “I think the principle lesson of looking at countries like Greece and others is that it is a terrible situation to end up in, where one has to make drastic abrupt changes in policy. But if you look at Greece or Ireland or the experience in the UK which did not face such a crisis but has made a very, very determined pivot in its policy, those economies are not doing very well right now. And I think leaders of those countries felt they had no alternative given where they had gotten to… That they were at a point where people were not lending the governments money anymore or about to stop lending them money…So they had to make drastic changes. But that is not a situation that we would like to find ourselves in.”
And we don’t have to. There’s no reason to make the leap to austerity, even if it’s politically expedient. In fact, we have the luxury of being able to pair a credible medium-term deficit reduction plan with immediate anti-austerity policies.
It’s not just Elmendorf. According to IMF economists, the GOP approach of slashing spending by even just 1 percent of GDP would under current conditions lead to a big spike in unemployment and a sizable drop in incomes, all while doing almost nothing to actually reduce deficits. The effects, according to the IMF are exacerbated when central banks can’t reduce interest rates anymore — a situation the Fed finds itself in right now. Kevin Drum put this all together in a single graph.
So the GOP talking point that the U.S. is just like Greece is key to their strategy of forcing big cuts to retirement programs and programs for the poor — but it’s extremely risky for everybody.
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