The front page of Wednesday's New York Times featured another lament for the supposed new "austerity" encompassing the nation, from economics reporter (and enthusiastic Keynesian) Binyamin Appelbaum, "As Budget Cuts Loom, Austerity Has Killed Off Government Jobs." An accompanying graphic with text insisted "Austerity Is Already Here."
Federal government spending often falls after recessions and wars, but the current round of cuts in investment and spending on goods and services is unusually deep. Combined with cuts by state and local governments, the drop in government’s contribution to economic growth is the largest in more than 50 years.
Appelbaum's article also fomented the Times-embraced myth of "austerity," a strange word to use in the context of the sequester, which would slow the growth of government spending this year by $85 billion, from an expected $3,600 billion -- about 2.3%.
The federal government, the nation’s largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war.
And the turn toward austerity is set to accelerate on Friday if the mandatory federal spending cuts known as sequestration start to take effect as scheduled. Those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government’s contribution to the nation’s gross domestic product by almost 7 percent in the last two years.
The oh-by-the-way caveat came in paragraph five.
Total government spending continues to increase, but those broader figures include benefit programs like Social Security. Government purchases and investments expand the nation’s economy, just as private sector transactions do, while benefit programs move money from one group of people to another without directly expanding economic activity.
Appelbaum did grant a few paragraphs to a right-of-center economist, Tyler Cowen, before hammering again on "austerity."
The current round of austerity does not yet approach the depth or the duration of the earlier round of cutbacks. Between 1969 and 1974, as spending on the Vietnam War declined, the government reduced consumption and investment by 24 percent after adjusting for inflation. Between 1991 and 1999, the government reduced consumption and investment by an inflation-adjusted 14 percent.