Fiscal austerity was the wring agenda before the crisis and it is even more wrong now
Fiscal conservatives are opportunistically looking to use the recession induced spike in the budget deficit to revive their crusade for fiscalausterity. The case for fiscal austerity is based on flawed economicanalysis and it is not supported by thoughtful budget analysis. It was thewrong agenda before the crisis and it is even more wrong now.Though there is understanding of the need for budget deficits to provideshort-term Keynesian fiscal stimulus, there is little understanding of themedium-term need for budget deficits to facilitate the process of privatesector deleveraging and to restore growth. The U.S. economy needs a new engine of growth and deficit-financed public investment has an important role to play. Deficit financedinvestment can create a "virtuous" circle whereby public investment spurs growth, in turn improving the budgetoutlook. The fiscal austerity agenda risks creating a "vicious" circle in which austerity slows growth, necessitatingfurther austerity.The budget numbers show the U.S. has a health care cost problem rather than a budget deficit problem. Fiscalausterity does not solve the health care cost problem and it also risks undermining growth. That makes fiscalausterity economic malpractice. Finally, the politics of fiscal austerity does a double disservice. First, it pushes public understanding in the wrongdirection by presenting government as the problem when the crisis has shown it is the private sector that has failedand needs reform. Second, by misleading the public it opens the door for all sorts of policy mischief - most notablycutting Social Security.