The deficit is falling fast. Can Washington accept victory?
By Neil Irwin, WashPost, Updated: April 23, 2013
In the Washington conversation, we often talk about austerity as something that other people are doing. Tight fiscal policy is undermining growth in all those other economies—Greece and Spain most dramatically, but also the rest of continental Europe and Britain—while we Americans have continued our profligate ways. Just Friday, Alan Simpson and Erskine Bowles were again offering a plan for the U.S. to finally get serious about its deficits and debt.
But while you wouldn’t always know it from the tone in Washington, the United States has made remarkable progress toward trimming its fiscal sails. We may not be doing austerity European-style (thankfully, if you’ve paid attention to recent economic numbers out of Europe), but American austerity, or at least steady deficit reduction, is well underway, as two new reports affirm.
John Makin, a resident scholar at the American Enterprise Institute, looks at the Congressional Budget Office’s projections and argues that “American fiscal austerity has been moderate and probably . . . has proceeded far enough for now.” A budget deficit that was more than 10 percent of GDP in 2009 is on track to be about half that this year. “The federal budget deficit is shrinking rapidly,” writes Jan Hatzius, the chief economist of Goldman Sachs, in an April 10 report. Goldman estimates that in the first three months of 2013 the deficit was running at 4.5 percent of GDP, and they forecast a deficit of 3 percent of GDP or less in the 2015 fiscal year. Hatzius adds that “there is still a great deal of room for the economic recovery to reduce the deficit for cyclical reasons.”
In other words, if policymakers can just not blow it and keep the recovery on track, that alone will do a good bit of the heavy lifting of deficit reduction.
(More here.)
In the Washington conversation, we often talk about austerity as something that other people are doing. Tight fiscal policy is undermining growth in all those other economies—Greece and Spain most dramatically, but also the rest of continental Europe and Britain—while we Americans have continued our profligate ways. Just Friday, Alan Simpson and Erskine Bowles were again offering a plan for the U.S. to finally get serious about its deficits and debt.
But while you wouldn’t always know it from the tone in Washington, the United States has made remarkable progress toward trimming its fiscal sails. We may not be doing austerity European-style (thankfully, if you’ve paid attention to recent economic numbers out of Europe), but American austerity, or at least steady deficit reduction, is well underway, as two new reports affirm.
John Makin, a resident scholar at the American Enterprise Institute, looks at the Congressional Budget Office’s projections and argues that “American fiscal austerity has been moderate and probably . . . has proceeded far enough for now.” A budget deficit that was more than 10 percent of GDP in 2009 is on track to be about half that this year. “The federal budget deficit is shrinking rapidly,” writes Jan Hatzius, the chief economist of Goldman Sachs, in an April 10 report. Goldman estimates that in the first three months of 2013 the deficit was running at 4.5 percent of GDP, and they forecast a deficit of 3 percent of GDP or less in the 2015 fiscal year. Hatzius adds that “there is still a great deal of room for the economic recovery to reduce the deficit for cyclical reasons.”
In other words, if policymakers can just not blow it and keep the recovery on track, that alone will do a good bit of the heavy lifting of deficit reduction.
(More here.)
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