Have we been living in an age of austerity?

 


(Photo by Alex Wong/Getty Images)

A number of readers and conservative commentators today have argued that I was wrong to describe the past several years as an age of austerity in the United States. Chuck Blahous, a well-known conservative economist, writes this morning:

Since 1947 the four largest deficits run by the US government, as a percentage of the economy, were in fiscal years 2009, 2010, 2011 and 2012—the first term of the Obama Administration. These deficits ranged in size from 6.8 percent to 9.8 percent of GDP. The previous annual record was 5.9 percent in 1983.

Blahous notes a number of other measures that suggest the nation hasn't been austere at all. Spending is far higher as a percentage of the size of the economy than throughout most of postwar history, and the federal debt held by the public is far above what it was before the recession that ended in 2009 and only likely to grow over the long-term.

Given that picture, how could I conceivably consider the past few years to be an age of austerity? I'd argue that you must consider the stance of fiscal policy relative to the environment we're in. And for the past few years, we've been recovering from the worst recession since the Great Depression, and in that environment it makes sense that the government will do what it can to make up for a massive shortfall in demand.

Except, the government has been doing a lot less to stimulate the economy for each of the past few years. Last year - 2013 - probably was the most extreme. The expiration of payroll tax cuts, a range of other tax hikes, and the deep cuts known as sequestration removed a tremendous amount of money from the economy.

Consider this chart based on data from Moody Analytics' Mark Zandi, which measures the change in the structural deficit as a percentage of GDP. The structural deficit measures whether government policy alone is adding or subtracting from economic growth. As you can see in the red, over the past few years, fiscal policy has been subtracting  substantially from economic growth. As former Fed Chairman Ben S. Bernanke said in December, "We’ve had very tight, on the whole—except for in 2009—we had very tight fiscal policy. People don’t appreciate how tight fiscal policy has been."

So yes, we've had several years of austerity in the United States.


Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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