A Democratic Senator From Virginia Knows The Best Anti-Deficit Strategy There Is

NBCHere is the latest datapoint in a growing trend that support for “austerity” is crumbling.

Ben White and Tarini Pariti at POLITICO have a good story on how Democrats are increasingly comfortable saying that austerity is pointless and that you can’t fix the deficit by focusing on spending.

…aided by a pile of recent data suggesting the deficit is already shrinking significantly and current spending cuts are slowing the economy, more Democrats such as Virginia Sen. Tim Kaine and Maryland Rep. Chris Van Hollen are coming around to the point of view that fiscal austerity, in all its forms, is more the problem than the solution.

This group got a huge boost this month with the very public demolition of a sacred text of the austerity movement, the 2010 paper by a pair of Harvard professors arguing that once debt exceeds 90 per cent of a country’s gross domestic product, it crushes economic growth.

Turns out that’s not what the research really showed. The original findings were skewed by a spreadsheet error, among other mistakes, and it’s helping shift the manner in which even middle-of-the-road Democrats talk about debt and deficits.

“Trying to just land on the debt too quickly would really harm the economy; I’m convinced of that,” Kaine, hardly a wild-eyed liberal, said in an interview. “Jobs and growth should be No. 1. Economic growth is the best anti-deficit strategy.”

You might wonder what, exactly, is the big deal here. After all, Democrats haven’t been the ones pushing for spending cuts. Republicans have. But most of the time, Democrats have ceded the general point to Republicans that debt is a major problem, and that in some form or another, fiscal policy should focus on reducing that debt. The realisation that growth is how you close the deficit and that austerity (because it saps growth) is counterproductive allows Democrats to form a counter-argument that doesn’t cede the GOP’s premise. And that in itself is an important change in the debate.

Make no mistake that the data supports this concept.

One of our favourite charts shows the unemployment rate vs. the deficit as a % of GDP. For decades, the unemployment rate has been a great predictor of where the deficit is.

deficit unemployment

Between the Reinhart/Rogoff Excel debacle, and the crappy growth in countries that are focused on “fiscal consolidation” (The Eurozone, the UK, and to some extent the US), it’s just getting harder and harder for anyone to say with a straight face that the priority should be spending cuts.

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