America’s fledgling economic recovery is being threatened by “obsessive concern with cutting deficits that has infected both parties,” a group of 350 economists wrote in a letter to lawmakers this week. Instead of focusing on deficit-reducing austerity measures that will do nothing to fix the “mass unemployment, rising poverty, and declining wages” that are holding back the recovery, Congress should focus on public investments that will boost job and economic growth, the letter states:
Yet too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going. There is no theory of economics that explains how we can deflate our way to recovery. Businesses are not basing investment decisions on how much Congress cuts the debt in 2023. As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery.
The budget hawks have the sequence backwards. Public outlay for jobs and recovery come first, growth is restored, and revenues follow. Budget cuts in a deep slump lead only to a deeper slump.