In 2013, the intellectual credibility of the austerians — deficit-phobes like Erskine Bowles, Alan Simpson, and the Washington Post editorial page — completely collapsed. Their favorite study turned out to have hilariously inept errors, the deficit is falling like a stone, and unemployment and poverty are back on the policy front-burner, at least in rhetorical terms.
And yet, austerian reasoning continues to completely dominate the policy agenda in Washington. Whenever any new policy is announced, you will almost always see the following question hot on its tail: How are you going to pay for it?
Underlying the argument is the assumption that any new policy must not increase the deficit, so we must find either offsetting cuts or increased taxes to balance the scales. That is austerian reasoning, and it'll infect your soul, curve your spine, and keep the country from winning the war.
Here's an example, from President Obama's recent infrastructure proposal:
"While the president will show how to fully pay for his proposal in this way, he will also make clear that he is open to ideas and wants to work with Congress in a bipartisan way to get this done," the White House said. [Reuters]
So, good on the president for proposing a meaty infrastructure package. But we don't have to pay for anything. If we think something is good enough to spend money on, then we should just borrow the money. Don't cut spending elsewhere. Don't raise taxes. Just break out the credit card.
Here's why: the country is still in an economic slump, and will probably remain so for several more years. There is idle economic capacity (most obviously in the form of unemployed workers), so new deficit spending will not result in excess inflation or increased interest rates in the short term. On the contrary, it will likely pay for itself even on narrow fiscal terms, by returning the economy to its potential more quickly, and thereby increasing tax revenue. (Even if it didn't, it would still be worth paying that price; this is just to drive the point home.)
By now, this is bog-standard reasoning; I've said it a thousand times myself. But the implications haven't been fully appreciated, especially by allegedly neutral reporters. Even the White House is stuck in the austerity twilight zone, presenting its deficit-cutting as a major accomplishment instead of a colossal failure representing millions of lost jobs.
Of course, American voters are basically trained to equate red ink with fiscal recklessness, a fallacy that Republicans have cynically relied on ever since Obama took office, reversing years of GOP policy on deficit spending during a recession. But that's all the more reason for liberals — and especially the president — to clear things up and drive home the conservative anti-jobs position.