The politics of the deficit are utterly backward
One of the most frustrating things about being a lefty during the depths of the Great Recession was watching giant policy errors build on the horizon like some sewage tsunami, and being powerless to stop them. And in 2010 the biggest and sewage-iest of the errors was the turn to austerity — the combination of budget hikes and spending increases that has slowed economic recovery across the developed world.
Five years later, as the deficit has fallen dramatically and so has interest in its supposed danger, it provides an interesting window into the politics of deficit paranoia — and how it is 180 degrees from reality.
Let me quickly review the story up to the present. A recession means the economy is suffering a shortage of aggregate demand. People are losing their jobs, meaning companies have fewer sales, so they fire employees or go out of business — rinse and repeat. The standard response to this is economic stimulus, both monetary and fiscal. For the former, the Federal Reserve cuts interest rates, making loans easier to get and thus stoking the economy; for the latter, the government borrows and spends directly, mechanically jacking up total spending.
Like the Great Depression, fiscal stimulus was particularly important during the Great Recession, because by late 2008, the Fed had cut interest rates all the way to zero — pushing its economic accelerator all the way to the floor — and it didn't halt or even much slow down the recession.
Initially, with big Democratic Party majorities in both the House and Senate, the government did the right thing. Right after President Obama took office, it passed the Recovery Act, a fairly sizable piece of fiscal stimulus. But as trusted center-left commentators like Paul Krugman pointed out, it wasn't nearly big enough to fill the economic hole visible at the time — and later measurements would show the hole to be vastly larger than the initial estimates.
So after that first round of stimulus, the deficit was very large due to all the borrowing. However, its inadequacy was also obvious, as unemployment plateaued at nearly 10 percent — then stayed there for an entire year. During and immediately after the crisis, the centrist establishment was too shocked to respond, but they eventually regrouped and began demanding immediate cuts to balance the budget — effectively aligning themselves with resurgent conservatives, who as usual demanded all social insurance programs be torched.
After the 2010 election, the centrists and conservatives got much of what they supposedly wanted: tons of austerity, most of it in cuts to government spending (particularly when compared to previous presidencies). The effects were obvious: a recovery that was grindingly slow and weak. It still shows no sign of returning to the previous trend.
In other words, austerians were successful in cutting the short-term deficit at the worst imaginable time. But what about now, as the economy is returning to at least a modicum of health? According to the standard economic script, government deficits aren't always good. When recovery has been reached, then it's time to cut back. "The boom, not the slump, is the right time for austerity at the Treasury," as John Maynard Keynes said (though adherents of Modern Monetary Theory would quibble with this).
What are the centrist austerians doing? Why, they've gone almost totally silent, of course. Ron Fournier, the avatar of D.C. centrism and a fanatical austerian, has barely mentioned the subject over the last year. More broadly, as Andrew Flowers documents for FiveThirtyEight, mentions of "deficit" and "debt" by Republican presidential candidates have fallen by about two-thirds since 2012. Mentions in Congress have fallen even further.
This demonstrates that the conventional politics around deficits and debt are fundamentally disconnected from any sort of rational understanding as to why they might be a problem. And due to those same actual mechanics, the political salience of austerity moves in inverse proportion to its real importance — insane overreaction when the deficit should be very high, bland disinterest when it ought to be coming down again.
It's maddening, but at least predictable. The next time a liberal administration is in charge during a recession, it may safely ignore the rending of garments from deficit paranoiacs. As soon as the immediate crisis is over, they'll quickly forget all about it.