Over the last few years, Washington political types have become increasingly concerned about large deficits and the subsequent increase in government debt. The rhetoric of those pushing for deficit reduction—the so-called deficit hawks—has grown more apocalyptic, with some prophesying that the United States was on the verge of collapse due to its debt burden and calling for sweeping action.
These warnings are wrong, and the suggestion that we undertake massive spending cuts is dangerous and misguided.
The Deficit Hawks: A Recent History
Deficit hawk rhetoric characterized much of the 112th Congress, which waged dramatic fights over spending. Those fights came to a head in the summer of 2011 when the Congress passed the Budget Control Act, the piece of legislation that brought us the supercommittee and the sequestration. Since that time, the deficit reduction debate has become a defining element of Washington politics. The deficit reduction obsession colors nearly all legislative action, from the manufactured crisis of the “fiscal cliff” to the Hurricane Sandy relief package.
The various positions on deficit reduction coming out of Washington serve as useful proxies for broader ideological positions. The political shorthand on deficit reduction plans suggests that Democrats are generally against reduced spending and that the Republicans are against increased revenue—in other words, each party is opposed to one of the two avenues that are necessary for deficit reduction. Those that offer some mix of the two have generally been considered the moderate voices on deficit reduction.
Of course, the reality is more nuanced than the short-hand allows. The Democrats have offered plans that balance spending cuts and revenue increases, and President Obama has signed relatively substantial spending cuts into law. Republicans have also agreed to a (fairly small) increase in revenue—at a ratio of 3:1 in total spending cuts to increased revenue.
The Case against Spending Cuts
However, the current state of the deficit reduction debate is almost exclusively focused on the need for further cuts. Indeed, most of the recent issues arising from the deficit reduction debate boil down to a steadfast unwillingness among Congressional Republicans to agree to any increased revenue toward deficit reduction.
The shift from a balanced fiscal restructuring—combining revenue increases and spending cuts over the next ten years—to one that favors spending cuts as the main path toward deficit reduction is deeply troubling. Enthusiasts of spending cuts offer unhelpful analogies based on presumably “common sense” appeals, such as likening the budget to a household’s finances. But hiding behind those appeals is the plain fact that we have considerable economic and budgetary evidence that suggests that spending cuts are deeply harmful:
Spending Cuts Are Harmful to the Economy and to Debt Reduction
So, the debate has shifted toward deficit reduction only by way of spending cuts amidst growing evidence that such cuts are contractionary. Worse still, because these cuts focus on spending in general rather than on reforming entitlement programs, they fail to address the core issues that confront the long-term sustainability of U.S. government debt. Indeed, the CBO projects that discretionary spending, will be 30 percent below its 100-year average by the year 2023. Yet lawmakers continue to target discretionary spending cuts rather than making the tough political choices over entitlement spending.
We are left to face dramatically reduced spending on essential functions of the federal government without ever really addressing the nation’s long-term fiscal health.
Deficit reduction that causes short-term economic pain will only make future debt reduction that much harder. Conversely, a sensible approach to deficit reduction would spur economic growth and job growth, which will in turn reduce deficits and reduce the debt burden.
By contrast, deficit reduction focused solely on drastic cuts to spending appears doubly foolish.