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Transition 2012

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Economy Update: Austerity Still the Word of the Day

by Newsteam Staff
May 17, 2012

An employee at the Louisville Slugger baseball bat factory in Louisville, Kentucky April 17, 2012 (John Sommers II/Courtesy Reuters). An employee at the Louisville Slugger baseball bat factory in Louisville, Kentucky April 17, 2012 (John Sommers II/Courtesy Reuters).

As Congress sets itself up for another partisan fight on the debt limit and spending (NYT), talk on the campaign trail remains centered around the economy and the best way to keep it moving forward. “Austerity” remains a hot topic, with analysts debating whether or not the United States should follow Europe’s lead and which candidate has the right plan.

In an interview with the National Review, presumptive GOP presidential nominee Mitt Romney estimates the federal debt and unfunded liabilities at $520,000 per household and warns that high debt could bring the economic crisis Europe now faces to the United States. ‘There is also a recognition in this country that what Greece and Italy and Spain are facing could conceivably be brought home to us,” he said. “The recognition that you reach a point where the world decides that your obligations are perhaps not going to be met, or that they will be inflated away — in which case people will ask for higher interest rates, and you’ll find yourself in a doom loop.”

President Barack Obama’s Treasury Secretary, Timothy Geithner, said in a Thursday speech that the GOP’s plans for an “economic agenda of severe, immediate austerity combined with deep, permanent cuts in education and the safety net for retirees” is not what the United States needs (WSJ). “A credible strategy for economic growth requires a willingness to do things, not just to cut things,” Geithner said.

For more on the candidates’ stances, check out CFR’s Issue Tracker on The Candidates and the Economy.

Suggested Other Reading:

CFR’s Sebastian Mallaby warns about the upcoming battle in the eurozone over austerity and the challenges he thinks will come out of the results of recent elections in France and Greece. He says the comparisons made to U.S. austerity are a bit off the mark: “The U.S. has serious budget challenges, which it will have to grapple with after the election at the end of the year, because that’s when the Bush tax cuts are due to expire; that’s when we hit the debt ceiling again; that’s when the automatic spending cuts agreed to last year in the sequester kick in. And there will be some fascinating brinkmanship around that. But it really ain’t Europe.”

Debating austerity measures in the United States and Europe is “sleight of hand, says Kim Holmes at the Washington Times, when what should really be debated is the choice between “more government spending and higher taxes that slow growth, or lower taxes, debt reduction, and structural reforms that stimulate prosperity.”

At the Washington Post, E.J. Dionne says Republicans wanted to follow Europe into austerity measures before, but it is the Obama administration’s resistance to doing so that has brought the United States out of recession faster than Western Europe.

– Gayle S. Putrich, Contributing Editor

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