Kenneth Gold | August 26, 2013
Over the last year fiscal hawks have been warning that if we didn’t drastically cut spending and enact major reforms in entitlement programs to reduce the federal budget deficit, the United States would become another Greece. Greece, however, after years of severe fiscal austerity, is now running a budget surplus, but the economy is paying a steep price. (In actuality, Greece is running a “primary surplus”, which excludes the costs of interest on the debt, social security, and local government.) In the second quarter of the year, the Greek economy contracted by 4.6%, continuing a deep recession that has now lasted more than six years, while unemployment exceeds 27%.
This month the Treasury Department reported that the federal deficit shrank by 38% in the first ten months of the fiscal year, and now projects a deficit of $760 billion for FY13, approximately half the FY09 deficit. Since 2009, the deficit has fallen from 10.2% of GDP to about 4% of GDP this year. According to CBO, in the last two fiscal years federal outlays declined by $150 billion, leading conservative economists like Stephen Moore of the Wall Street Journal to declare that “the budget sequester is a success”. That would seem, however, to depend on what you were trying to achieve.