FacebookTwitterGoogle+RedditEmail

Ryan’s Austerity Budget

by ANDREW FIELDHOUSE

This week House Budget Committee Paul Ryan (R-Wis) released his Fiscal Year 2014 House Budget Resolution, The Path to Prosperity: A Responsible, Balanced BudgetLike Ryan’s fiscal 2012 and fiscal 2013 budget resolutions, this latest iteration is an austerity budget—it proposes aggressive near- and long-term spending cuts, which come on top of the austerity from sequestration spending cuts (which would be continued), the ratcheting down of discretionary spending caps, and the recent expiration of the payroll tax cut.

Ryan’s budget would reduce near-term primary spending (excluding net interest) by $42 billion in fiscal 2013, $121 billion in fiscal 2014, and $343 billion in fiscal 2015, all relative to CBO’s alternative fiscal scenario (AFS) current policy baseline.1 The fiscal 2013 spending cut represents the remainder of sequestration cuts scheduled for this year. Additionally, the Ryan budget would increase revenue by $58 billion in fiscal 2014 and $98 billion in fiscal 2015 by allowing the “business tax extenders” to expire. While tax increases have a much smaller drag per dollar than government spending cuts, this still contributes to the economic drag from the Ryan budget.

On net, we estimate that the Ryan budget would decrease gross domestic product (GDP) by 1.7 percent and decrease nonfarm payroll employment by 2.0 million jobs in calendar year 2014 relative to current policy. We estimate that the Ryan budget would increase the unemployment rate by between 0.6 percentage points and 0.8 percentage points. The Ryan budget would push the output gap—the difference between actual output and non-inflationary potential output, which registered $985 billion (5.9 percent of potential) as of the fourth quarter of 2012—from 4.4 percent under the AFS baseline back to 5.9 percent. By proposing a budget that would leave the output gap unchanged from 5.9 percent of potential GDP by the end of 2014, Ryan has essentially proposed that for at least two years the U.S. economy make zero relative progress in emerging from the current adverse economic equilibrium of depressed economic output, slow growth, high unemployment, and large cyclical budget deficits.

While the full brunt of Ryan’s austerity does not take effect until 2014, it’s worth noting that his budget would also lower economic growth by 0.6 percentage points and employment would fall by 750,000 jobs in calendar year 2013—this is mostly the effect of sequestration taking effect for the remainder of the year (and consistent with CBO’s estimate that sequestration will reduce employment by 750,000 jobs this year). Job losses would then rise to a total of 2.0 million in 2014 as new austerity measures kick in and the economic drag from sequestration increases.

CBO’s economic projections show real GDP growth accelerating to 4.0 percent in 2014, the beginning of the economy’s rapid return to full employment that has routinely been projected four to five years from CBO’s forecast issuances. The Ryan budget would guarantee that growth rates in this range do not materialize in 2014 or 2015, and likely longer. As a result, the U.S. economy would remain depressed for longer than forecast, cyclical budget deficits would be larger than forecast, and additional economic scarring from productive resources atrophying would further decrease long-run potential output. Higher unemployment would also compound the decade-long trend of falling real income for median working age households and the three-decade long trend of widening income inequality. In short, the Ryan budget would reduce middle class living standards, both present and future.

This approach to fiscal policy ignores a plethora of historical and international evidence and a wide consensus among economists that austerity measures—particularly spending cuts—wreak havoc on depressed economies, to the point of being fiscally counterproductive: primary spending cuts are simply replaced with bigger cyclical budget deficits as depressed economic activity reduces tax receipts and increases automatic spending (e.g., unemployment benefits), and a poorer nation will have a harder time sustaining its debt.

Empirical evidence and economic research over the last two years confirms the substantial danger that austerity presents to depressed economies’ output and fiscal health. We see this not only in comprehensive cross-country comparisons, but with individual countries: The United Kingdom was pushed back into recession by Prime Minister David Cameron’s austerity budget, and many other European countries have short-circuited their recoveries with austerity measures.

It is unfortunate that Chairman Ryan has again failed to heed mounting evidence counseling against near-term budget austerity. Instead, his fiscal 2014 budget—like the two preceding it—has proposed deep and premature austerity that would unequivocally delay return to full employment and cost millions of American jobs relative to current budget policy.

Andrew Fieldhouse is a federal budget policy analyst at the Economic Policy Institute, where this article originally appeared.

Notes 

1. The Ryan budget has been adjusted to exclude funding levels for overseas contingency operations (OCO). CBO’s AFS baseline has been adjusted to exclude both OCO funding and the inflation-adjusted continuation of emergency disaster relief for Hurricane Sandy appropriated for fiscal 2013 (which is continued in both CBO’s current law and AFS baselines, but is not continued in the Ryan budget).

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

March 30, 2017
William R. Polk
What Must be Done in the Time of Trump
Howard Lisnoff
Enough of Russia! There’s an Epidemic of Despair in the US
Ralph Nader
Crash of Trumpcare Opens Door to Full Medicare for All
Carol Polsgrove
Gorsuch and the Power of the Executive: Behind the Congressional Stage, a Legal Drama Unfolds
Michael J. Sainato
Fox News Should Finally Dump Bill O’Reilly
Kenneth Surin
Former NC Governor Pat McCory’s Job Search Not Going Well
Binoy Kampmark
The Price of Liberation: Slaughtering Civilians in Mosul
Bruce Lesnick
Good Morning America!
William Binney and Ray McGovern
The Surveillance State Behind Russia-gate: Will Trump Take on the Spooks?
Jill Richardson
Gutting Climate Protections Won’t Bring Back Coal Jobs
Robert Pillsbury
Maybe It’s Time for Russia to Send Us a Wake-Up Call
Prudence Crowther
Swamp Rats Sue Trump
March 29, 2017
Jeffrey Sommers
Donald Trump and Steve Bannon: Real Threats More Serious Than Fake News Trafficked by Media
David Kowalski
Does Washington Want to Start a New War in the Balkans?
Patrick Cockburn
Bloodbath in West Mosul: Civilians Being Shot by Both ISIS and Iraqi Troops
Ron Forthofer
War and Propaganda
Matthew Stevenson
Letter From Phnom Penh
James Bovard
Peanuts Prove Congress is Incorrigible
Thomas Knapp
Presidential Golf Breaks: Good For America
Binoy Kampmark
Disaster as Joy: Cyclone Debbie Strikes
Peter Tatchell
Human Rights are Animal Rights!
George Wuerthner
Livestock Grazing vs. the Sage Grouse
Jesse Jackson
Trump Should Form a Bipartisan Coalition to Get Real Reforms
Thomas Mountain
Rwanda Indicts French Generals for 1994 Genocide
Clancy Sigal
President of Pain
Andrew Stewart
President Gina Raimondo?
Lawrence Wittner
Can Our Social Institutions Catch Up with Advances in Science and Technology?
March 28, 2017
Mike Whitney
Ending Syria’s Nightmare will Take Pressure From Below 
Mark Kernan
Memory Against Forgetting: the Resonance of Bloody Sunday
John McMurtry
Fake News: the Unravelling of US Empire From Within
Ron Jacobs
Mad Dog, Meet Eris, Queen of Strife
Michael J. Sainato
State Dept. Condemns Attacks on Russian Peaceful Protests, Ignores Those in America
Ted Rall
Five Things the Democrats Could Do to Save Their Party (But Probably Won’t)
Linn Washington Jr.
Judge Neil Gorsuch’s Hiring Practices: Privilege or Prejudice?
Philippe Marlière
Benoît Hamon, the Socialist Presidential Hopeful, is Good News for the French Left
Norman Pollack
Political Cannibalism: Eating America’s Vitals
Bruce Mastron
Obamacare? Trumpcare? Why Not Cubacare?
David Macaray
Hollywood Screen and TV Writers Call for Strike Vote
Christian Sorensen
We’ve Let Capitalism Kill the Planet
Rodolfo Acuna
What We Don’t Want to Know
Binoy Kampmark
The Futility of the Electronics Ban
Andrew Moss
Why ICE Raids Imperil Us All
March 27, 2017
Robert Hunziker
A Record-Setting Climate Going Bonkers
Frank Stricker
Why $15 an Hour Should be the Absolute Minimum Minimum Wage
Melvin Goodman
The Disappearance of Bipartisanship on the Intelligence Committees
FacebookTwitterGoogle+RedditEmail