Economic Plan: Soft Landing ArgumentThe recent passage of Senator Patty Murray’s budget attempts to slow the growth of the federal debt while at the same time stimulating the economy. Essentially, it represents a soft landing approach, attempting to minimize the impact of slowly-reduced spending by shifting priorities, increasing taxes on higher-income earners and stimulating the economy.
It does not, however, represent a fundamental change in economic policy or priorities. At the end of Murray’s projected ten year period, the deficit is not eliminated but instead roughly halved, down to $566 billion. The annual shortfall would be 2.2% of GDP.
Saving the Economy: Austerity Argument
Austerity supporters claim that the U.S. has, in essence, been immersed in permanent Keynesian economics for the past three decades. With its unlimited ability to borrow (and the associated logarithmic increases in the national debt), government has played a larger and larger role in the economy. That role may have increased economic activity, but at the price of an exploding national debt.
Paul Ryan’s budget reverses that process by reducing, eliminating and fundamentally altering various key federal programs. Unlike the Murray budget, it shrinks the size of government by decreasing both taxes and expenditures. With less spending on infrastructure and other federal programs, however, the associated growth created by government spending is reduced as well, threatening a return to recession. A similar dose of austerity has already been employed throughout Europe, with devastating results. Much of the Eurozone is steeped in negative growth, with unemployment soaring. Portugal, for example, has an unemployment rate of nearly 18%. Spain’s unemployment reached a record 26% at the end of 2012.
U.S. Economy at a Philosophical Turning Point
After kicking the can down the road for decades, Washington has reached a philosophical crossroads. Economic cycles have generally been shortened, become significantly more shallow, and in some cases even eliminated altogether due in large part to active fiscal and monetary policies. These policies, which accelerated since the Reagan administration, have smoothed out economic highs and lows over the past thirty years.
However, with governmental spending exceeding revenue growth, deficits have reached record levels. With that, the politicians are now attempting to come to grips with the problem.
Proponents of a ‘balanced’ approach argue austerity will destroy jobs and level the economy – and believe raising taxes and modest reductions in spending will change the trajectory in a healthy way.
Deficit hawks claim that the U.S. has refused to face its problems for far too long; families need to balance their budgets, and, so must the federal government. The short-term cost of a recession, if in fact it happens, is a small price to pay for fiscal sanity.
Solving U.S. Budget Problems
Who’s right? Nobody knows. However, both sides think they are, which is why we’re utterly unable to come to long-term agreements in American politics today. James Reston’s words never rang more true.
The Editorial Board. Europe’s Bitter Medicine. (2013). New York Times. Accessed on April 15, 2013.
Semuels, Alana. Spain’s unemployment rate tops 26%. (2013). Los Angeles Times. Accessed on April 15, 2013.
Raju, Manu and Gibson, Ginger. Patty Murray plan doesn’t balance budget. (2013). Politico. Accessed on April 15, 2013.
Brainy Quote. Austerity Quotes. (2013). Accessed on April 15, 2013.
Focus Dep. James Reston Biography. (2013). Accessed on April 15, 2013.
Mitchell, Daniel J. PhD. The Impact of Government Spending on Economic Growth. (2005). The Heritage Foundation. Accessed on April 15, 2013.