Can We Please Not Call it “Austerity” in the U.S.?

It appears that some are starting to refer to the act of going over the “fiscal cliff” here in the U.S. (i.e., not extending the tax cuts and going through with spending cuts come January) as an “austerity crisis”, good examples being the folks at the Washington Post here, here, and here along with others.

It’s easy to be ambivalent when hearing of “austerity measures” in Greece over the last few years (yes, the Greek debt crisis is now about four years old), that country being so far away and with such a sordid history of debt troubles that, whatever it is they call it never really seemed to matter much.

But, hearing about a forced reduction in the U.S. budget deficit from a freakishly high $1+ trillion per year to somewhere around half that amount next year if Congress takes no action in the months ahead just doesn’t sound like “austerity” to me. 

Entry #4 below from this Dictionary.com item would appear to be the applicable definition as we’re not talking about teachers, nuns, manners, or writing and, even to the most casual observer of U.S. budget and economic policy, going over the “fiscal cliff’ would not amount to eliminating excess, luxury, or ease in anyone’s life. 

Sure, people would be paying higher taxes as a result of reversing tax cuts that now go back nearly a decade and, with soaring prices for things like health care, tuition, and most other goods and services that can’t be imported, it’s not going to be any easier for already struggling middle-class families to make ends meet, but in no way is this “austerity”. People may think it is, but it’s not.

To find good examples of austerity you have to go back many decades, not coincidentally, to the time when the nation didn’t freely print money and spend borrowed money. The Great Depression was a time when, by and large, the U.S. was “without excess, luxury, or ease” and conditions were quite “severe”. World War II was another example where people had to do without in order to help the Allies defeat Nazi Germany.

Perhaps they should call what may come to pass in January a “living within your means crisis”.

That would be closer to the truth, but, going over the cliff wouldn’t even accomplish that. Some quick math reveals that with U.S. GDP at about $15 trillion and growth at about 2 percent, even if taxes are raised and spending is cut in January as current law requires, we’d still be borrowing about twice what we should to keep our debt-to-GDP ratio steady - about $600 billion versus $300 billion.

Of course, going over the cliff would likely cause that 2 percent growth figure to go sharply lower, raising our debt ratio ala Greece, however, continuing to do what we’ve been doing (i.e., a lot of kicking the can down the road) raises the risk of a real crisis someday, of the currency variety.

Therein lies the dilemma. What lies ahead is a potential crisis, but it’s not an “austerity crisis”.