Fiscal austerity–or deficit cutting–is the subject of much current debate. As Europe proves, severe austerity can slow growth or lead to recession.
Despite periodic slowdowns, the US economy is on a sustainable fiscal path. The deficit is projected to drop below 2.5 percent of GDP by 2017, below its 30-year average, helped partially by the sequestration budget cuts.
Instead of pursuing short-term fiscal reform, as suggested in the president’s recently released budget, Congress should focus on working toward long-term tax and entitlement reform.
via Austerity undone – Economics – AEI.
Cross-posted at Asymptosis.
Comments
2 responses to “Yowza. Now Even AEI is Dissing Austerity.”
[…] Cross-posted at Asymptosis. […]
I wouldn’t say AEI (or any other right leaning entity/group/party/etc.) is “dissing” austerity. I think they are trying to parse out between “severe austerity” and what they allude to as being ‘the right amount of austerity.’ For instance, the article reads:
“American fiscal austerity has been moderate and probably, at the current pace of deficit reduction of about $300 billion per year over the next half decade, has proceeded far enough for now.
Fiscal austerity in Europe-especially in southern Europe-remains too severe. Europe is in recession. The February Italian elections resulted in over 50 percent of votes being cast for anti-austerity candidates, and Italy has yet to form a government. Greece is in a severe recession, and youth unemployment in Spain is over 50 percent.”
So, AEI is the Goldilocks of austerity–Southern Europe is too harsh, other places are too soft, but the U.S. is just right. To support this, the paper ends with:
” but this is not the time to even consider reversing the progress already achieved by rescinding the sequester, especially if, as the president proposes, the replacement would be further tax increases.
Finally, the easing of the R&R 90 percent debt-to-GDP fiscal cliff means that the target for achieving a zero-deficit balanced budget over the next decade is unnecessarily harsh. The macro aspects of US fiscal policy are well-
balanced-for now. Micro aspects, including reforms of tax and entitlement programs should be legislated over the next two years to place those programs on a truly sustainable path over the coming decades. Then, we can get back to concentrating on growing the economy.”
Sure, the paper warns of concentrating too much on deficit reduction, but then places entitlement and tax reforms before focusing on economic growth on the list of priorities for D.C. I am not buying that AEI has pulled in the reigns on the austerity talk.