Somewhere along the way, if you follow political headlines, we went from living in a poor economy to living in "an age of austerity." The argument that Washington has to spend less and reduce the deficit has become the starting point for any discussion of the federal budget. With millions of Americans still unemployed, where did austerity come from?
Economic historian Jason Taylor at Central Michigan University says a big moment for the budget discipline camp was post-World War II America.
"In 1946 we had a huge decrease in government spending," he says. "We went from running huge deficits to huge surpluses. And the unemployment rate was 3 percent."
Washington got out of the way, and the economy thrived.
Now, the war period itself makes a counterpoint: government spending stoked GDP. But Taylor reminds us that politicians can cherry-pick.
He says austerity's appeal is that it's simple. Discipline is good.
It makes for nice metaphors: an economy is a family, even if it may not be that simple, argues Brown University's Mark Blyth. He's written a new history of austerity.
"When the family spends too much, then you have to cut spending, so it's simple," he says. "Well, it's absolutely not like that at all. We don't get to import members of other families into the family in order to tax them for the next generation. We get to do that. It's called immigration.
Blyth says recent decades of prosperity further fueled the flame of markets are the answer, not state spending.
Then came the financial crash. Many governments slashed budgets, on advice of the International Monetary Fund. But top IMF economists now say whoa: austerity made things worse.
"Those states who did the most stimulus, their economies recovered the most," says economist Justin Wolfers, who teaches at the University of Michigan. "Those states who cut back the most, their economies underperformed the most."
Wolfers thinks the consensus of economists has moved toward government spending in a weak recovery...while politicians in general have gone the other way.
That's his history. The budget-cutters, they have theirs.
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