…after this week’s fiscal cliff deal, the United States is now on pace to engage in about as much fiscal consolidation in 2013 as many European nations have been doing in recent years – and more than countries like Britain and Spain. – U.S. now on pace for European levels of austerity in 2013
FROM FISCAL scheme to austerity, it’s what shouldn’t be happening if our politicians had learned anything from what happened in Europe.
Tax increases, like cessation of the payroll tax holiday that President Obama, Democrats and Republicans supported in the Fiscal Cliff bill, drains resources from the middle class, the very people who keep the economy chugging. When it’s weak out there, nothing is dumber.
The graphic above is based on trends, not predictions, as Brad Plumer writes on Wonkblog at the Washington Post.
Now, there are a couple of ways to interpret this chart. One could argue that the United States is now in a better position to begin shrinking its deficits than Europe was, because our economy is doing better – and we did more stimulus to begin with. (We also have a central bank that’s doing more aggressive monetary easing.) Or one could say this just proves Europe isn’t doing all that much austerity in the first place. Or one could argue that the U.S. is about to repeat Europe’s mistake of premature austerity.
Either way, Congress is starting to tighten fiscal policy this year. There’s not going to be a big fiscal-cliff-induced recession, fortunately, but there will likely be a partial drag. JP Morgan’s Michael Feroli estimates that the tax hikes and spending cuts that have survived the cliff deal will shave at least 1 percentage point off U.S. economic growth in 2013…
David Dayen, through a tweet, said it first.
What progressives do on the austerity craze about to kick in, which includes President Obama’s entitlement giveaway, could be the whole ballgame for what type of Democratic Party will be alive after the Obama era.
Indeed, November 6 was not just a great night for the president; the liberal wing of the Democratic Party also scored impressive victories, sweeping Elizabeth Warren into the senate, Sherrod Brown to a significant reelection, and even Alan Grayson back to Congress.
This sets up, of course, Democrats’ own version of intra-party chaos, and it goes far beyond the typical grumbling and chest-thumping about Obama’s negotiating skills or scoring political points. This is about bedrock principles. “Soul of the party” kind of stuff.
Soul of the party kind of stuff, indeed.