Friday, August 5, 2011

Can We Please Stop Calling It ‘Austerity’?

I’m sick of people using the word “austerity” regarding the GOP budget plans and the recent debt deal. Even Nate Silver (www.fivethirtyeight.com) used it recently, and he’s a numbers guy. He should know better.

From Webster:

Definition of AUSTERITY

1: the quality or state of being austere

2a : an austere act, manner, or attitude
 b : an ascetic practice

3: enforced or extreme economy

Obviously it’s definition 3 that applies to our budgeting. I suppose “enforced” qualifies, but I’m pretty sure that liberals are implying “extreme”. That’s certainly what I hear in my head when someone says “austerity” to me, and I am pretty sure I’m similar to the average Joe in this regard. In fact, since liberals also use the word “extreme” when describing GOP budgetary plans, I’m certain that this is their intention.

Is the debt ceiling deal really so extreme?

Based upon the January 2011 baseline from the CBO, our government will spend just a bit over $46 trillion through 2021. The debt ceiling deal reduces that spending by about $1 trillion, or about 2.2%. Our total deficit spending in that same time frame is right at $7 trillion. That means that we will be spending about 118% of our revenue over that time frame. I’ve mentioned this before, but these are extremely optimistic projections (revenues at 20%+ of GDP starting in 2015, +2.6% average GDP growth). We’re currently spending about 140% of our revenue, and honestly I don’t see any reason to believe at this point that number is going to shrink significantly over the next ten years.

However, assuming the 118% number is correct, then we’d lower spending to 115% of revenue. So, if I tell my accountant that for every $1 I take in, I’m going to spend $1.18, but then I rework my budget and realize I can get it down to $1.15, do you think my accountant is going to call that “austere” or “extreme”? No, me neither.

And it becomes even less extreme if you don’t adopt the CBO’s rosy projections. If we actually spend 130% of revenue, then this debt deal will only cut it to about 127-128%. Yippee.

How about the Ryan plan? It reduces spending by $5.8 trillion through 2012, or about 12.6%. However, it also only drops that 118% down to 115%. That’s because the Ryan plan assumes much less revenue, almost $5 trillion less, due to somewhat more realistic assumptions about economic growth (but I think the Ryan plan is too optimistic also).

In fact, the only plan that has been presented that may deserve the austerity tag is Cut, Cap, & Balance. I don’t believe that CCB has ever been scored by the CBO, but I can do some guessing based upon the January CBO data. I assumed the same optimistic GDP and revenue numbers as given in the CBO baseline, and used the spending caps as defined in the bill. It appears to cut spending by $6 trillion, much like the Ryan plan. The number works out to be about 13.1% reduction in spending. However, it does reduce spending over the next decade to a mere 102% of revenue, increasing the debt by about $1 trillion. That is significantly less than the 118%. I’m still not sure I’d tag it as extreme, though, since we still spend more than we’re bringing in. That’s in total, I should point out. CCB starts running an annual surplus in 2017, assuming the CBO’s optimistic revenue projections. My guess is that if the CBO scored CCB they’d reduce the GDP growth and revenue projections, which might make things worse.

I can’t point this out too many times. Liberals win when they define the argument. When they call these plans austerity measures and we let them, we lose the argument before it ever begins. The only plan above that might deserve that tag is CCB, and I personally wouldn’t even call it austere. Even CCB would increase our current debt from $14.5 trillion to $15.5 trillion at a minimum over the next ten years.

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