Flash: Shutdown ending, austerity still the rage
As the shadow of the shutdown passes, it’s proper to be reminded again that this fight involved spending levels that are materially suppressing economic growth and hampering the recovery.
Specifically, the deal soon to be voted on leaves the sequester in place, at least until Jan. 15. This was a sadly predictable outcome of the standoff, as we noted at the outset. True, it does provide for further negotiation and debate on the sequester, but since that level of spending was supposed to be so horrific that neither Democrats nor Republicans would accept it, what exactly was there to negotiate?
The sequester is merely one manifestation of Congress’ love for austerity in the post-recession era. From the inception, recovery programs have never been as large or robust as they needed to be, despite evidence that even harsher austerity regimes kept much of Europe mired in slumps.
The Economic Policy Institute displays the harvest graphically (see above). The chart shows that the recovery has barely progressed, falling well below the growth of every recovery period since before the 1980s. Josh Bivens and Heidi Shierholz of EPI have more here. If post-2008 government spending had matched that of earlier recoveries, 5 million more people would be employed today.
What’s kept the U.S. economy from drifting back into recession has been the work of the Federal Reserve, which has done its best to make up in monetary policy the slack created by dreadful fiscal policy on Capitol Hill.
The shutdown makes the Fed’s decision-making much easier: Instead of “tapering” its stimulative bond purchases as it hoped to do starting right about now, it will have no choice but to continue its policies indefinitely. The shutdown may be coming to an end, but for foolish fiscal policy there’s no end in sight.