Under “Stimulus Now, Austerity Later” Plans, We’d Already Be in Austerity

Unemployed men queued outside a soup kitchen opened in Chicago by Al Capone, 1931

The Committee for a Responsible Federal Budget, a Pete Peterson-funded front group associated with the Fix the Debt campaign, basically the biggest deficit scolds out there, wrote this piece trying to differentiate their thirst for austerity from the fiscal cliff, which is an austerity package in and of itself.

They claim that it’s important to “go smart” on the deficit, rather than the big, apparently dumb cuts of the fiscal cliff.

…just because the cliff would reduce the deficit does not mean that it is good fiscal policy. Going over the cliff would also likely send the U.S. into another recession, seeing how the cliff would be among the largest single years of deficit reduction in the past 75 years. When compared with a comprehensive plan that would gradually put debt on a downward path, it is very frontloaded and often across-the-board in nature, eschewing the kind of targeted changes that a fiscal plan would make […]

This is why comprehensive plans like Simpson-Bowles and Domenici-Rivlin gradually phased in cuts, delaying much of the deficit reduction until when the economy has had more time to recover. Simpson-Bowles specifically put off cuts for a year and phased them in very gradually beyond that–and even then, most of the cuts that took place upfront were discretionary spending cuts which have already taken place. Domenici-Rivlin even included some additional stimulus in the form of a full payroll tax holiday. We have pointed out before that going big on longer-term deficit reduction allows room for short-term stimulus measures or at least slowly phased-in cuts.

It’s very nice for these folks to claim that they want to fix the economy first before going full-bore into deficit reduction. But keep in mind that both Bowles-Simpson (I prefer the B-S ordering of their names) and Domenici-Rivlin were put together 2 years ago. If either of their plans were followed, we would be in the midst of austerity budgeting today. And I seriously doubt that economic conditions would cause them to call for a change in course.

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