Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

Ryan’s Austerity Budget


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.


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:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


Weekend Edition
October 28, 2016
Friday - Sunday
John Pilger
Inside the Invisible Government: War, Propaganda, Clinton & Trump
Andrew Levine
The Hillary Era is Coming: Worry!
Gary Leupp
Seven World-Historical Achievements of the Iraq Invasion of 2003
Paul Street
Standing Rock Water-Protectors Waterboarded While the Cleveland Indians Romped
Stanley L. Cohen
Israel: 1984 Everlasting
Jeffrey St. Clair
Roaming Charges: Comfortably Dumb
Michael Brenner
American Foreign Policy in the Post-Trump Era
Luciana Bohne
Crossing the Acheron: Back to Vietnam
Robert Hunziker
The Political Era of Climate Refugees
Stephen Cooper
Alabama’s Last Execution was an Atrocity
Michael Munk
Getting Away With Terrorism in Oregon
T.J. Coles
Confronting China: an Interview with John Pilger
Pete Dolack
Work Harder So Speculators Can Get More
Joyce Nelson
Canadians Launch Constitutional Challenge Against CETA
John Laforge
US Uranium Weapons Have Been Used in Syria
Paul Edwards
The Vision Thing ’16
Arshad Khan
Hillary, Trump and Sartre: How Existentialism Disrobes the Major Presidential Candidates
Peter Lee
It’s ON! Between Duterte and America
Chris Zinda
The Bundy Acquittal: Tazing of #oregonstandoff
Norman Pollack
America at the Crossroads: Abrogation of Democracy
Bill Quigley
Six Gulf Protectors Arrested Challenging Gulf Oil Drilling
Joseph Grosso
Starchitects in the City: Vanity Fair and Gentrification
Patrick Carr
Economic Racial Disparity in North Carolina
David Swanson
Public vs. Media on War
Chris Gilbert
Demo Derby in Venezuela: The Left’s New Freewheeling Politics
Ira Helfand
Nukes and the UN: a Historic Treaty to Ban Nuclear Weapons
Brian Cloughley
The US, NATO and the Pope
Binoy Kampmark
Nobel Confusion: Ramos-Horta, Trump and World Disorder
Sam Albert
Kids on Their Own in Calais: the Tip of an Iceberg-Cold World
Russell Mokhiber
Lucifer’s Banker: Bradley Birkenfeld on Corporate Crime in America
Ron Jacobs
Death to the Fascist Insect! The SLA and the Cops
Cesar Chelala
Embargo on Cuba is an Embarrassment for the United States
Jack Smith
And the Winner Is….
Ken Knabb
Beyond Voting: the Limits of Electoral Politics
Matt Peppe
An Alternate Narrative on Hillary Clinton and Donald Trump
Uri Avnery
The Israeli Trumpess
James Rothenberg
Water Under the Bridge
Louis Yako
Remembering Rasul Gamzatov: The Poet of the People
Dave Reilly
Complete the Sentence: an Exploration of Orin Langelle’s “If Voting Changed Things…”
Jonathan H. Martin
When Nobody Returns: Palestinians Show They are People, Too
Louis Proyect
The Outsider-Insider: Isaac Babel’s Big Mistake
Simon Jones
The Human Lacunae in Ken Loach’s “I, Daniel Blake”
Martin Billheimer
Now and Then, Ancient Sorceries
Charles R. Larson
Review: Brit Bennett’s “The Mothers”
David Yearsley
Bach on the Election