Presentation is loading. Please wait.

Presentation is loading. Please wait.

The Fiscal Austerity Trap: How Budget Deficit Hysteria Risks Sabotaging Growth & Creating Self-Fulfilling Budget Difficulties Thomas Palley New America.

Similar presentations


Presentation on theme: "The Fiscal Austerity Trap: How Budget Deficit Hysteria Risks Sabotaging Growth & Creating Self-Fulfilling Budget Difficulties Thomas Palley New America."— Presentation transcript:

1 The Fiscal Austerity Trap: How Budget Deficit Hysteria Risks Sabotaging Growth & Creating Self-Fulfilling Budget Difficulties Thomas Palley New America Foundation

2 Introduction Return of fiscal austerity agenda = case of Déjà vu all over again. Wrong economic agenda. Wrong political agenda.

3 Why We Need Sustained Deficit Financed Fiscal Policy - 1 (1) Keynesian stimulus to fight the recession. (2) Help private sector deleveraging. (3) Spur economic growth.

4 Figure 1. The virtuous circle linking growth and deficit financed public investment. Growth Deficit financed public investment Fiscal space + + +

5 What is a Sustainable Deficit? Sustainable deficit keeps steady debt/GDP ratio. (1) With growth of 2.5% & debt/GDP ratio of 100% sustainable deficit = 2.5% of GDP. (2) If real interest rate = 2% implies interest service burden of 4%.

6 Is Our Current Budget Situation Sustainable? Table 1. Projected annual average budget deficit as a percent of GDP, 2009 –2050. (Source: Kogan et al., 2008) Annual average deficit/GDP -4.2% Letting Bush-Cheney 2001 & 2003 tax cuts expire in % = -2.3% Holding health care cost growth equal to per capita GDP growth +3.0% = +0.7%

7 Conclusion - 1 Fiscal austerity based on flawed economic analysis & is not supported by the numbers. Need budget deficits to: (1) Fight recession. (2) Help private sector deleverage (3) Spur growth via Public Inv.

8 Conclusion - 2 Fiscal austerity will do triple damage: 1)Risk economic stagnation & sub-par growth. 2)Make economic reform more difficult. 3)Uses budget deficit as Trojan Horse to justify an assault on vital public programs – especially Social Security.


Download ppt "The Fiscal Austerity Trap: How Budget Deficit Hysteria Risks Sabotaging Growth & Creating Self-Fulfilling Budget Difficulties Thomas Palley New America."

Similar presentations


Ads by Google