US Posts Smallest Budget Deficit in Five Years
With the 2013 fiscal year in the books, the US Treasury Department reports that the federal budget deficit dropped to $680 billion this year, a drop of more than $400 billion from last year’s $1.09 trillion budget gap. The $680 billion is the lowest budget deficit the US has seen in five years since the Great Recession caused tax revenues to plummet and unemployment payments to skyrocket.
Despite the seemingly good news, many economists don’t believe this to be a positive sign for the economy as a whole. According to Nobel Prize-winning economist Joseph Stiglitz, the economy needs more stimulus, not belt-tightening.
Stiglitz notes that the unemployment rate would have hit 12 percent (as opposed to the high of 10 percent) without the federal stimulus of 2009 and the recent drive to austerity has caused job creation to slow to its weakest levels in nine months. Rather than obsess over shrinking the deficit, Stiglitz urges the administration to pump more money into the economy which will lead to higher tax revenues and shrink the deficit anyway.
Other economists note that outside of slowing job growth, the economy has seen minimal growth, averaging around 2 percent per year. Compared with the Clinton years, the economy grew about 4-8 percent each year.
While economist projections are one thing, we can clearly see the negative effects of austerity and what Stiglitz calls “deficit fetishism” on the other side of the pond. With just about the entire EU imposing austerity measures, unemployment in the Eurozone is nearly 11 percent. In countries like Spain, it’s well over 20 percent. Even worse than the slow growth in the US, austerity measures have caused European economies to shrink.
So while decreasing the deficit is a good thing, the way the government is going about it may not be. Stiglitz believes another stimulus is in order which, while increasing government spending, can pay for itself in increased tax revenues from putting more people to work and lower unemployment spending.