The Tangible Effects of Austerity

One of our recent blog posts discussed the debate about austerity in Europe and here in the United States.  But what specific components of the economy will be affected by austerity measures and what effect would those measures have on the U.S. economy as a whole?

Both Europe and state economies within the U.S. have tried their hand at significant budget cuts so it’s worth examining the fallout in both cases.  Budget cuts have been heavily focused on areas like public education (both higher and lower), infrastructure, and research and development.  This is not by coincidence.  These areas, especially education, along with social welfare programs usually make up the majority of discretionary spending in state governments (particularly in large states like FL and PA) and state legislators and many governors have made public promises to not raise taxes under any circumstances.  Without the prospect of raising revenue through taxes, austerity (i.e. reducing deficits) can really only come in the form of budget cuts, and those cuts are most likely to come from those sections of the budget listed above.

Unfortunately, spending in education, infrastructure and manufacturing, and innovation is necessary for American competitiveness in a global economy and many have argued, most notably President Obama and his economic team, it is a surefire way to stimulate the economy.

The macroeconomic effects of the austerity experiment in Europe and at the state-level are muddled enough in terms of growth and job creation that it has been declared both a success and failure.  As such, the debate is still in full swing at the federal level as the U.S. approaches its so called “fiscal-cliff” at the end of this calendar year.

The cliff, and the debate itself, will have several components.  The first is whether or not to extend the Bush tax cuts and if so, to whom?  Similarly, programs for payroll tax deduction ($120 billion) and extended jobless benefits ($40 billion) will expire at yearend unless they are renewed.  And lastly, the types of budget cuts that have occurred in state and European governments discussed above are set to go into effect with mandatory 10% cuts on all discretionary spending beginning January 2013– reducing federal expenditures by $85 billion.  The mandatory cuts are part of the Budget Control Act that was passed last year after the debt-ceiling fiasco; the compromise that ended the standoff mandated that the cuts begin in January 2013 if Congress had not agreed to a debt reduction plan by that time (which of course, they have not).

With that date approaching, the austerity debate will become as prominent in Washington as it is in Brussels and in state capitols across the country.  If the mandatory cuts and tax increases occur, the nation’s GDP will likely lose several percentage points.  But even if there is a resolution, budget debates will continue and education, infrastructure, and R&D will all be on the chopping block.  The budget proposed by Rep. Paul Ryan (R-WI), the Chair of the House Budget Committee, has become the de-facto fiscal platform of the Republican Party and proposes significant cuts to all the areas discussed above.  Meanwhile, President Obama continues to insist that spending in such areas is a national priority.

The role of things like education, innovation, and infrastructure are central to America’s economy in a globalized market.  Policy makers would do well to carefully consider and debate any cuts to those areas and not simply sacrifice them for politically harder issues like defense spending and tax reform.

Posted by: Sean Norris

Sources: The New York Times, Forbes, CNN, The Guardian, The Telegraph

Photo Credit: Paul Ryan courtesy of flickr user Gage Skidmore

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You are Invited – Europe’s Energy Security in the Balance

The European Energy Security Initiative, the Program on America and the Global Economy,

and the Global Energy Initiative

invite you to a

Panel discussion

Europe’s Energy Security in the Balance:

What Future for the Southern Energy Corridor?

with

Peter Doran, Senior Policy Analyst, Center for European Policy Analysis (CEPA)

Andrea Lockwood, Deputy Assistant Secretary for Eurasia, Africa and the Middle East, U.S. Department of Energy

Adnan Vatensever, Senior Associate, Energy and Climate Program, Carnegie Endowment for International Peace

Moderater: Alexandros Petersen, Advisor, European Energy Security Initiative, Woodrow Wilson Center

Wednesday, March 30, 2011

1:30 – 3:00 p.m.

6th Floor Flom Auditorium

RSVP acceptances only european.studies@wilsoncenter.org

For directions visit www.wilsoncenter.org/directions

Posted by: PAGE Staff

The Future of U.S. – E.U. Energy Cooperation

The following is an event summary from a program held by the European Studies Program and the  Program on America and the Global Economy at the Woodrow Wilson Center.

Chief of staff at the Office of the Special Envoy for Eurasian Energy at the U.S. Department of State, Vincent J. O’brien, stated that “stakes for an energy secure future have never been higher than they are today.” Cooperation is needed on securing new resources of natural gas, diversifying energy sources and creating a more integrated European energy market. Given that the U.S.–EU trade relationship is the largest in the world and that the economies are increasingly becoming interdependent, Europe’s energy security is naturally in the best interest of the U.S. While the dynamics behind Europe’s energy concerns are complex, pipeline politics seem to dominate discussions.

To help combine efforts and formalize ongoing discussions between the U.S. and the EU on these issues, the creation of a U.S.–EU Energy Council was realized in November of 2009. The Council is divided into three main working groups addressing: energy security and new markets to help secure new natural gas resources; standards and policies to harmonize the ongoing work on electric cars, smart grids and other technologies; and technical research and development to cooperate on research for carbon capture and storage, rare earths and renewable technologies. Read more of this post

You are Invited: The Future of U.S. – E.U. Energy Cooperation

The European Energy Security Initiative, the Program on America and the Global Economy (PAGE), and the Kennan Institute of the Woodrow Wilson Center invite you to panel discussion

The Future of U.S. – E.U. Energy Cooperation

with

Ulrich Eckle, Principal Administrator, European External Action Service (EEAS), Americas Directorate, European Commission;

Vincent J. O’Brien, Chief of Staff, Office of the Special Envoy for Eurasian Energy, U.S. Department of State;

Jeffery Piper, Desk officer USA and Ukraine, International Relations Unit, DG Energy, European Commission; and

Alexandros Petersen, Adviser, European Energy Security Initiative, Woodrow Wilson Center

Wednesday, February 9, 2011

1:00 – 3:00 p.m.

5th Floor Conference Room

RSVP acceptances only to  european.studies@wilsoncenter.org

For directions visit www.wilsoncenter.org/directions

Woodrow Wilson Center

1300 Pennsylvania Ave., NW

Washington, DC 20004

Posted by: PAGE Staff