This Is (Still) Not Austerity

by: Cullen Roche

I've seen some economists (like the Market Monetarists) trying to claim that we're undergoing a harsh fiscal austerity. In doing so, they can try to claim there's harsh austerity going on and that QE and monetary policy has kept the economy afloat.

First of all, aggregate government spending has not declined. In fact, it is rising. We can rearrange the definitions of "austerity" depending on how we want to frame the debate, but I wouldn't call a continued rise in current expenditures austerity like I would claim that what's going on in Greece has been austerity (where government spending has actually declined 25%-plus since its highs). Anyway, here's the current expenditures in the U.S. at the state, local, and federal level:

Second, if you look at why the budget deficit is declining, you'll notice that it's not the result of government imposed austerity and reductions in spending, but increased tax revenues due to higher incomes and capital gains. In other words, the deficit is declining because the private sector is healing and the balance sheet recession is ending (which is precisely what I predicted would happen several years ago). The hand off isn't complete, but the government hasn't dropped the baton by any means -- and it certainly hasn't imposed harsh austerity.