This just in from CBO: “The federal government ran a budget deficit of $486 billion in fiscal year 2014, the Congressional Budget Office (CBO) estimates — $195 billion less than the shortfall recorded in fiscal year 2013, and the smallest deficit recorded since 2008.”
That’s 2.8 percent of GDP, down from its peak of 9.8 percent of GDP in 2009, in the heart of the Great Recession. And that 7 percentage-point decline in the deficit/GDP is by far the largest five-year decline in the post-war era.
Now, understand that as an employee of the fiscally responsible Center on Budget and Policy Priorities, I’m solidly on record that there’s a time for deficit reduction. But I am as sure of anything in economic analysis that these last five years were not that time.
And think about this: What did the deficit cutters gain? Did this sharp pivot to fiscal austerity help boost the recovery? To the contrary, it created well-documented fiscal drag that shaved 1.5 percentage points off of last year’s GDP growth, worth more than 1 million jobs. It is one of the main reasons our more-than-five-year-old economic recovery is still not reaching nearly enough people.
Did it lower interest rates? Of course not. They were already headed for zero due to the actions of the Fed and the weak recovery itself.
Did it boost the political standing of Democrats, including the president, who bought into the extremely wrongheaded idea that at times like this, the federal government has to tighten its belt, just like any other family? (In fact, the opposite is true.) Again, not at all. Find me one poll that shows this sharp deficit reduction helped the president’s approval ratings.
Did it further the goals of those who want to shrink government without regard for the impact on growth, jobs or the ability of the government to meet the challenges we face?
On that one, you’ve got me.