The notion that the United States faces a dire fiscal reckoning has become almost a truism in American politics. Politicians across the ideological spectrum speak of a looming fiscal crisis, and the media describes the national debt as a crushing burden on the American people. While this rhetoric about the American fiscal system is incorrect, it leads to policies that cause severe economic harm to ordinary Americans.
Starting in 2011, misguided concerns about budget deficits caused Congress to abandon efforts to help the economy recover from the Great Recession. Economists linked this fiscal austerity to higher unemployment and slower economic growth. Worst of all, after austerity made it harder for jobless Americans to find work, Congress refused to reauthorize extended unemployment benefits that expired at the end of 2013. This caused over one million Americans to lose their benefits at a time when the unemployment rate was well over six percent. According to Douglas Elmendorf, who directed the nonpartisan Congressional Budget Office during this period, “A rush to reduce budget deficits after 2010 was the biggest error in this downturn.”This article was originally published in Harvard Law & Policy Review.