Rep. Paul Ryan defends his plan to cut $5 trillion in government spending over 10 years by saying it will create jobs, and dismisses critics of his budget by suggesting they're blowing things out of proportion. But the world already has hard evidence that he's wrong on both counts.
Yet the most important question isn't how we balance the budget. It's why. A budget is a means to an end, and the end isn't a neat and tidy spreadsheet. It's the well-being of all Americans. By giving families stability and protecting them from tax hikes, our budget will promote a healthier economy and help create jobs.
Ryan preempts his critics. "Our opponents will shout austerity, but let's put this in perspective," Ryan says. Instead of increasing by 5 percent a year, federal spending will increase by 3.4 percent — still an increase! But government spending and the deficit is not our biggest problem. We can tell because we have actual case studies: The U.S. responded to the 2008 financial crisis with a stimulus, while Europe responded with austerity. The result? The U.K. looks to be heading toward a triple-dip recession, as Quartz's Qwinn Quilford explains Tuesday. Guilford catalogues the depressing data:
January’s manufacturing output fell by 1.5% compared with December—the largest contraction since last June. Most analysts expected the data to come in flat...
UK industrial protection tanked as well, shrinking by 1.2% in January, compared with December; analysts expected a 0.1% increase. The pound plummeted to $1.484 from $1.492, as the rotten data increased the likelihood of quantitative easing from the Bank of England. Since the beginning of the year, the currency has lost nearly 10% to the dollar.
Four years after the financial crisis, even conservative Peggy Noonan thinks the stimulus should have been bigger (though it's not entirely clear she knows that's what she's advocating). Since government spending dropped after 2009, we've seen clear negative consequences. The unemployment rate without government spending cuts would be 7.1 percent, instead of 8.1 percent, The Wall Street Journal's Justin Lahart reports. Compared to 2008, 1.2 million fewer people are doing government work.
Paul Ryan says cutting the deficit right now is necessary to "promote a healthier economy and help create jobs." But as The New York Times' Paul Krugman explained Sunday, "the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy." The deficit peaked in 2009 at $1.4 trillion, and now it's down to $845 billion. That sounds like a lot, but Krugman argues it's too small given the state of the economy. He explains:
Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy. To take the classic example, America never did pay off the debt from World War II — in fact, our debt doubled in the 30 years that followed the war. But debt as a percentage of G.D.P. fell by three-quarters over the same period.
A sustainable deficit right now would be $460 billion, and if the current deficit is "cyclically adjusted" — adjusted for the bad economy — it would be about $423 billion. When the economy recovers, the deficit will need to shrink, Krugman writes. But we're not there yet. And the big spending cuts in Ryan's budget won't help us get there. Even his former running mate Mitt Romney has admitted that — multiple times.
This article is from the archive of our partner The Wire.