The End Of Austerity-Mania On Capitol Hill?


Congress, the White House, and maybe even the country at large have come a long way since House Minority Leader Nancy Pelosi (D-CA) — of all people — told reporters, “It’s clear we must enter an era of austerity. To reduce the deficit through shared sacrifice.”

That was July 2011, days before she, other congressional leaders, and President Obama struck a debt limit deal to cut $2 trillion in federal spending over 10 years. It was perhaps Democrats’ darkest moment since Obama was first elected in 2008. But it was ironically consistent with Obama’s broader goals: $4 trillion in total deficit reduction, split roughly two parts to one between spending cuts and higher taxes.

A lot’s changed since then. The economy has slowly but steadily improved over the past two years — enough that the country re-elected Obama. With that victory under his belt he was able to pocket a decent chunk of the revenue he’d hoped to raise by allowing the Bush tax cuts for top earners to expire. These developments combined to send the deficit into a rapid tumble.

But that’s when the real wrangling in Congress over dollars spent and dollars collected stopped dead in its tracks. Republicans turned off the revenue spigot; Democrats refused to cut more spending absent further tax increases on wealthy Americans; sequestration was passively allowed to take effect; and the budget took a backseat on Capitol Hill to issues like immigration reform, gun control and investigations of the Obama administration.

So for the last several months, Democrats have been grappling with two challenges, at times at odds with one another: Dragging Republicans back into the budget fight; and attempting to resume that fight absent a false consensus that the final piece of the budget deal is only possible if it includes immediate and austere spending cuts and no revenue.

During that time, they’ve received two gifts — one academic, and one all-too real — that deeply damaged the intellectual foundations for the austerity movement.

Several weeks ago, economists discovered that a wildly influential paper by Harvard scholars Ken Rogoff and Carmen Reinhart, which implied U.S. debt might be approaching an economically perilous tipping point, contained critical errors. Indeed, it’s likely that no such tipping point exists. At the same time, austerity policies in Europe continued (and still continue) to prove economically disastrous.

None of this has increased Democrats’ appetite for stimulus. But at last it has them publicly questioning the wisdom of belt-tightening in general, and indiscriminate spending cuts in particular, during a fragile recovery.

Their challenge now is to amplify the fact that their broad approach (if not its particulars) has been vindicated, so that when the budget debate inevitably resumes this summer ahead of debt limit and government funding fights, the public is prepared to question GOP resistance.“If you’re asking whether there’s a recognition [among Republicans] that austerity policy is bad for the economy — no,” Rep. Chris Van Hollen (D-MD), the Dems top budget guy, told me in a phone interview Tuesday. “They don’t. They are still wedded to this idea that very deep cuts, very deep immediate cuts is actually good for the economy even though all you have to do is look to Europe to know that the opposite is true.”

“[W]e’ve made significant progress recently when it comes to our short and medium-term deficits,” said Senate Budget Committee Chairman Patty Murray at a hearing this week dedicated to questioning the wisdom of austerity. “And now the focus should be on creating jobs, preserving our fragile recovery, long-term deficit reduction, and setting the conditions for economic growth built from the middle out.”

Republicans are sticking to a path of least resistance, declining to confront the fact that their position — that sequestration is preferable to a more gradual mix of spending cuts and higher taxes — has been called into question, and pushing off legislative debate in hopes of conflating the budget and debt limit fights.

Democrats are preparing for that fight by undermining the Republican strategy going in.

“What we can do with all this new information is make the case that we want to replace sequestration,” said a senior Senate Democratic aide. “[W]e’re connecting sequestration to austerity [to] reduce the case they’ve made for cutting spending in the short term.”

To that end, Democrats ironically take comfort in the fact that Republicans are holding a hard line on annual spending for the coming fiscal year. The GOP position is that spending must not exceed sequestration levels, but that money should be funneled from already-struggling domestic program into security spending. Democrats — up to and including President Obama — insist that they’ll oppose attempts to plus up GOP spending priorities at the expense of the rest of the government functions. But they’re happy to entertain the notion of restoring spending to the Pentagon and other agencies… if domestic programs get the same treat.

They’ll have to relent on austerity altogether, the aide said, “If they want to have their priorities especially on the defense side protected.”

Van Hollen still says that’s how things are likely to play out.

“Republicans are going to have to decide if they want these deep cuts to defense to take place,” he said. “I think you’re going to see more attention to this in the coming months for a couple reasons: Just a couple days ago, over 600,000 civilian defense furlough notices went out. Just last week … the superintendent of schools at Ft. Bragg announced that teachers for the schools on base are going to be furloughed for five days this fall. These are the kids of servicemen and women who are putting their lives at risk in service of the country are going to have kids out of school for five days this fall because of the sequester…. [S]o they’re just beginning to see the impact of the sequester.”

If they’re right, the question is whether lawmakers will return to negotiations over a deficit-reducing “grand bargain” or turn to more modest measures.

The Center for American Progress, an influential, White House-aligned think tank, says Democrats ought to avoid getting snookered into deficit negotiations all over again, unless Republicans abruptly moderate their demands.

“We think that we’ve learned that the last three years have shown if nothing else that there’s no way to get a big deal right now,” said Michael Linden, managing director for economic policy at CAP, at a reporter roundtable Thursday morning. “Republicans just simply aren’t — Republicans in Congress I should say — don’t seem willing to make the compromises necessary to achieve a large deal…. To that end we think that we should keep it small, keep it manageable.”