So it doesn't make much sense to claim that increasing the amount of debt that you are carrying fits the definition of being austere. Obviously, quite the opposite is true. Always spending so much that you must borrow to cover expenses, demonstrates a lack of restraint, and an inability to be responsible.1: the quality or state of being austere2a : an austere act, manner, or attitude
b : an ascetic practice3: enforced or extreme economy
Nevertheless, here's a writer attempting to make that claim -- that government deficit spending is consistent with austerity --
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/10/why-is-the-recovery-so-weak-its-the-austerity-stupid/
Why is the recovery so weak? It’s the austerity, stupid.
By Matt O'Brien October 10 at 2:04 PM
Welcome to Austerity U.S.A., where the deficit is back below 3 percent of GDP and growth is still disappointing—which aren't unrelated facts.
It started when the stimulus ran out. Then state and local governments had to balance their budgets amidst a still-weak economy. And finally, there was the debt ceiling deal with its staggered $2.1 trillion of cuts over the next decade. Add it all up, and there's been a big fiscal tightening the past few years, something like 4 percent of potential GDP. Indeed, as Paul Krugman points out, real government spending per capita has been falling faster now than any time since the Korean War demobilization.
And, as you can see above, all this austerity has been hurting GDP growth since 2011. It shows the Hutchins Center's new "fiscal impact measure," which looks at how much total government tax-and-spending decisions have helped or harmed growth. The dark blue line is what policy has actually done, and the light blue one is what a neutral policy would have done. So, in other words, if the dark blue line is below the light blue one, like it has the last three years, then policy has subtracted from growth.
...
Here's a chart from the 'CBO - An Update To The Budget And Economic Outlook: 2014 to 2024', which shows that deficit spending -- while much lower than it was in 2009 -- is still above the historical average from 1974 to 2013 --
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45653-OutlookUpdate_2014_Aug.pdf
https://www.cbo.gov/publication/45653
The CBO's monthly estimate for September 2014 shows a budget deficit for 2014 of -2.8% of GDP -- slightly smaller than the average deficit shown above of -3.1%, and inline with the first Projected bar in the chart above -- but note that this is an estimate, not an actual value --
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/49450-MBR.pdf
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. Relative to the size of the economy, that deficit—at an estimated 2.8 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 40 years, and 2014 was the fifth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009.
Here's the same chart going back to 1930 from the 'Federal Reserve Bank of St. Louis' --
http://research.stlouisfed.org/fred2/series/FYFSGDA188S
Governments certainly don't need encouragement to borrow money, and the charts above demonstrate that point. A balanced budget for the U.S. Federal government is a rare exception, not the norm, and using the word 'austere' to describe the U.S. government's handling of its finances is absurd on it's face -- the U.S. government has never been austere.
So what's the real premise of those who claim that the U.S. government should borrow even more? Is a budget deficit over 4% of GDP really required to ensure even mediocre economic growth?
And notice this chart from the same CBO report cited above, which shows the total Federal debt as a percentage of GDP is approaching the levels seen during WWII. That is, if you believe the CBO's accounting -- some show the current level of debt at about 100% of GDP --
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45653-OutlookUpdate_2014_Aug.pdf
https://www.cbo.gov/publication/45653
U.S. taxpayers were able to pay down the debt accumulated during World War II, but what one time expense is going to end that will allow the current debt to be paid down?
Notice how poorly the writer at the washingpost.com attempts to defend his point that the government can improve the economy by increasing it's debt load -- by ending 'austerity', as he put it. He links to the Brookings Institution's Fiscal Impact Measure to show that a lack of government spending is hurting gross domestic product (GDP) growth, but other than showing government spending is counted in GDP accounting, this proves nothing.
It's easy to see how the government can increase GDP, since every transaction the government is involved in is counted in GDP -- one doesn't need to do a study to show that government spending increases GDP. The difficulty is increasing GDP in a way that doesn't simply consume resources, and make people's lives worse.
In a previous post, I wrote about this obvious problem in using GDP as a measure of the effectiveness of government spending. World War II demonstrates this point clearly, since rationing had to be introduced in 1942, at the peak of the U.S. government's deficit spending for the war, and well after the war 'stimulus' had begun in late 1940. Clearly, government spending can increase GDP, while simultaneously reducing the quality of life.
Or, for a more recent example, consider the usefulness of one of the programs that was part of the 'American Recovery and Reinvestment Act of 2009': the subsidization of rural broadband. In three of the areas that received stimulus funds to expand broadband access, $349,234 was spent per unserved household to get them broadband access.
Of course, a reduction in government spending will reduce GDP, but treating this as an unqualified negative is just a silly assumption that all government spending is good. There's no reasonable way to defend that assumption.
And all of this begs the painfully obvious question, 'when should the government not run a deficit?'
This is one of the most damning aspects of this notion that governments can run deficits in bad times to 'stimulate' demand to 'smooth' the business cycle -- the FRED Surplus/Deficit chart above proves that as far as government is concerned, there is almost never a good time for a budget surplus and a decrease in the debt.
It should be obvious why -- politicians are in the business of buying votes, and paying down debt does nothing to achieve that goal. To stay in office, politicians must focus on pandering to current voters, rather than ensuring government finances are sound for future generations.
It's a pity so many people will urge politicians to be even more irresponsible.
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