Economists Warn of 'Irrational Fears' of the Deficit and Stymied Recovery

Economists for Peace and Security has issued the following statement on current budget debates, pointing out that the entire premise is false and that giving in to the demands to cut the deficit imperils fragile recovery. James K. Galbraith, along with Ken Arrow, Andrew Brimmer, Robert J. Gordon, is among the notable signatories.

A Statement by Directors, Trustees and Fellows of Economists for Peace and Security

Annandale-on-Hudson, New York - February 28, 2011 - The budget adopted by the House of Representatives on February 19, 2011 does not make economic sense and is likely to do more harm than good. First, the rationale for the measure is based on a false premise. Secondly, the budget cuts being proposed will impede and may end the recovery. If the recovery fails, unemployment will increase and the financial crisis could re-emerge.

The premise that the US government is broke is false. The US government has never defaulted and will not default on any of its financial obligations. Deficit spending is normal for a great industrial nation with a managed currency, and it has been our normal economic condition throughout the past century. History proves, and sensible economic theory confirms, that in recessions, increased federal spending -- not balancing the budget -- is the tried and true way to return to a path of sustained growth and high employment.

Eliminating waste in government spending is desirable. But that is not what the House proposes; indeed the House budget failed to address the largest waste in federal government, namely in the military, and the House failed to remove our most egregious subsidies, such as to oil companies. To adopt a policy of deep budget cuts at this stage of recovery is to surrender to irrational fears in the service of a political, not an economic, agenda.

As economists, as citizens, and as long-time critics of waste in government, we call on the Senate to reject the House proposal and to craft an alternative that places first priority on sustaining economic recovery and on dealing with the country's true economic and social problems, which include unemployment, home foreclosures, the fiscal crisis of states and cities, our infrastructure needs, energy security and climate change.

Current Signators*:

Clark Abt, Brandeis University and Cambridge College

Kenneth Arrow, Stanford University, Nobel Laureate

Marshall Auerback, Madison Street Partners

Barbara Bergmann, American University and University of Maryland

Linda Bilmes, Harvard University

Stanley Black, University of North Carolina

Andrew F. Brimmer, Brimmer & Co.

Kate Cell, Principal, Kate Cell Consulting

Lloyd Jeff Dumas, The University of Texas at Arlington

Gary Dymski, University of California, Riverside

James K. Galbraith, The University of Texas at Austin

David Gold, The New School

Robert J. Gordon, Northwestern University

Michael Intriligator, UCLA

Richard F. Kaufman, Bethesda Research Institute

Ann Markusen, University of Minnesota

Richard Parker, Harvard University

Dimitri B. Papadimitriou, The Levy Institute of Bard College

Gustav Ranis, Yale University

Kathleen Stephansen

Lucy Law Webster, Center for War/Peace Studies, New York

*Please note that affiliations are listed for identification purposes only.

Cross-posted from New Deal 2.0.