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

December 08, 2016
John W. Whitehead
Power to the People: John Lennon’s Legacy Lives On
Mike Whitney
Rolling Back the Empire: Washington’s Proxy-Army Faces Decisive Defeat in Aleppo
Ellen Brown
“We’ll Look at Everything:” More Thoughts on Trump’s $1 Trillion Infrastructure Plan
John Stauber
The Rise and Fall of Obamacare: Will the Inside Story Ever be Told?
Ted Rall
Ameri-Splaining
Michael J. Sainato
Mainstream Media Continues Absolving Itself From Clinton, Trump Election Failures
Ralph Nader – Mark Green
Divest or Face Impeachment: an Open Letter to Donald Trump
Gareth Porter
US Airstrikes on Syrian Troops: Report Data Undermine Claim of “Mistake”
Martha Burke
What Trumponomics Means for Women
Ramzy Baroud
Fatah, Hold Your Applause: Palestinian Body Politic Rotten to the Core
Steve Horn
Jeff Sessions, Trump’s Attorney General Pick, Introduced First Bill Exempting Fracking from Drinking Water Rules
Joe Ware
The Big Shift: Why Banks Need to Stop Investing Our Money Into Fossil Fuels
Juliana Barnet
On the Ground at Standing Rock
Franklin Lamb
Aleppo Update: An Inspiring Return to the Bombed Out National Museum
Steve Kelly
Hidden Harmony: on the Perfection of Forests
December 07, 2016
Michael Schwalbe
What We Talk About When We Talk About Class
Karl Grossman
The Next Frontier: Trump and Space Weapons
Kenneth Surin
On Being Caught Speeding in Rural America
Chris Floyd
In Like Flynn: Blowback for Filth-Peddling Fascists
Serge Halimi
Trump, the Know-Nothing Victor
Paul DeRienzo
Flynn Flam: Neocon Ex-General to Be Trump’s National Security Advisor
Binoy Kampmark
Troubled Waters: Trump, Taiwan and Beijing
Tom Clifford
Trump and China: a Note From Beijing
Arnold August
Fidel’s Legacy to the World on Theory and Practice
Dave Lindorff
Is Trump’s Idea To Fix a ‘Rigged System’ by Appointing Crooks Who’ve Played It?
John Kirk
Cuba After Fidel
Jess Guh
Repeal of Affordable Care Act is Politics Playing with the Wellbeing of Americans
Eric Sommer
Team Trump: a Government of Generals and Billionaires
Lawrence Davidson
U.S. Reactions to the Death of Fidel Castro
John Garvey - Noel Ignatiev
Abolitionism: a Study Guide
Clancy Sigal
Caution: Conspiracy Theory Ahead!
December 06, 2016
Anthony DiMaggio
Post-Fact Politics: Reviewing the History of Fake News and Propaganda
Richard Moser
Standing Rock: Challenge to the Establishment, School for the Social Movements
Behrooz Ghamari Tabrizi
Warmongering 99 – Common Sense 0: the Senate’s Unanimous Renewal of Iran Sanctions Act
Norman Solomon
Media Complicity is Key to Blacklisting Websites
Michael J. Sainato
Elizabeth Warren’s Shameful Exploitation of Standing Rock Victory
David Rosen
State Power and Terror: From Wounded Knee to Standing Rock
Kim Ives
Deconstructing Another Right-Wing Victory in Haiti
Nile Bowie
South Korea’s Presidency On A Knife-Edge
Mateo Pimentel
Some Notes and a Song for Standing Rock
CJ Hopkins
Manufacturing Normality
Bill Fletcher Jr – Bob Wing
Fighting Back Against the White Revolt of 2016
Peter Lee
Is America Ready for a War on White Privilege?
Pepe Escobar
The Rules of the (Trump) Game
W. T. Whitney
No Peace Yet in Colombia Despite War’s End
FacebookTwitterGoogle+RedditEmail