Austerity Reduces Deficit - Hurts Economy

The latest figures from the Treasury Department show the budget deficit has dropped significantly. In August of 2012, the deficit  was about $1.2 trillion dollars (for an eleven month period, running from October through August). But the deficit this year is about 37% lower through August of this year (only about $755 billion). Some might think that's a good thing, and under some conditions it would be.

If the budget deficit was being reduced through an increase in revenues (taxes), or if it was being reduced in the midst of a healthy & booming economy, the drop in the budget deficit would be something to be celebrated. Unfortunately, neither of those things are true. The Republicans won't let the government increase its revenues by raising taxes (even on the wealthy, who are enjoying record income levels and very low taxes). They have insisted that the deficit be reduced through austerity -- cutting government spending, and most of those cuts have been the across-the-board cuts from the sequester.

These austerity measures have taken money out of the pockets of hurting Americans, and that has reduced spending by the public (which takes money out of the economy in general -- reducing demand and depressing the job market). That reduction in demand and depression of job creation has contributed to keeping our sluggish economy from recovering. In other words, the Washington politicians have done the wrong thing for an ailing economy. Instead of giving it a shot in the arm with more spending (paid for with more revenues), they have cut spending and further damaged the economy.

A recession (which most Americans are still mired in) is never cured by cutting government spending. Spending cuts will only work in a healthy economy that can absorb the cuts. An economy trying to recover from a recession must be spurred on by increased spending (spending which will circulate through the economy, increasing demand and job creation). Sadly, our politicians are either too stupid or too greedy to understand that -- and that means it will be a lot longer and more difficult to recover fully from the recession.