Record-High Deficits Are Not "Austerity"

This morning’s Washington Post contained a front-page article that included the following sentence:

“With the 2015 budget request, Obama will call for an end to the era of austerity that has dogged much of his presidency and to his efforts to find common ground with Republicans.”

Rather than engage in a semantic discussion about what constitutes an “era of austerity,” I will simply present some salient facts of the US budget for readers who may be unfamiliar with them.

Deficits: 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.

Spending: Since 1947 there have been only three fiscal years in which the US government spent more than 23 percent of our total national economic output—2009, 2010 and 2011, the first three years of the Obama Administration. 1982 and 1983 come in fourth and fifth. CBO projects that under current law sixth through eighth place will belong to 2022, 2023 and 2024. In every year of the Obama Administration, spending has exceeded historical averages as a percentage of GDP.

Debt: Federal debt held by the public stood at 39 percent of GDP in 2008 before this Administration took office. It is now more than 73 percent of GDP, its highest pointsince 1950—when the US was still paying down the costs of World War II—and is projected to rise further in the future.

The future fiscal imbalance: CBO finds that the long-term fiscal imbalance is attributable to projected cost growth in Medicare, Medicaid, Social Security and the Affordable Care Act. The Obama Administration advocated successfully for the enactment of the ACA and the expansion of Medicaid. Medicare savings were legislated but these savings are being spent on a new federal health program rather than being used to improve federal finances. Social Security’s financing shortfall has been permitted to grow well beyond the largest size that lawmakers have ever previously closed.

Major policy decisions: The most important fiscal policy decisions made in recent years include the passage of the ACA, which increased projected spending in the fastest-growing component of the federal budget; the 2009 stimulus law, the costs of which were added to the deficit; a two-year cut in the Social Security payroll tax, which was added to the deficit; and the permanent extension of most previously-legislated tax reductions. These deficit-increasing policies are together several times greater in magnitude than occasional instances of fiscal discipline (sequestration), which were in turn forced by the failure of negotiations to reduce the federal deficit. 

In sum, federal fiscal policy decisions in recent years added enormously to deficits and have produced the highest levels of spending, deficits, and debt relative to GDP since the aftermath of World War II. I leave it to others to determine whether this can reasonably be termed “austerity.”