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The Fiscal and Economic Effects of Austerity

by Simon Johnson, Peterson Institute for International Economics

Testimony before the Senate Budget Committee hearing on "The Fiscal and Economic Effects of Austerity"
June 4, 2013

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Continuing uncertainty around the US federal budget in general, and the debt ceiling in particular, is not helpful—and may prove destabilizing both at home and around the world. Another round of confrontation over the debt ceiling would not be helpful to growth or employment. A sudden move towards further tightening of fiscal policy in the United States could have similar results. There is no meaningful evidence that the United States needs to cut federal deficits dramatically this year, or even over the next five years. There is no threshold for US federal debt, either gross or net, that would necessarily trigger slower growth or higher bond yields or any other economic problem. There is a danger that the United States will inflict upon itself an unnecessary and damaging degree of austerity. The United States should instead be building an economy within which federal revenue can be robust, and public spending growth can be contained over the next decade.


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Book: US Pension Reform: Lessons from Other Countries February 2009

Testimony: The Dollar and the US Economy July 24, 2008

Testimony: Why Deficits Matter: The International Dimension January 23, 2007

Book: Accountability and Oversight of US Exchange Rate Policy June 2008

Op-ed: Bubbles Are Getting Blown Out of All Proportion September 8, 2004

Book: The United States as a Debtor Nation September 2005