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Brad DeLong: "Normalization"?

Michael Linden and the Center for American Progress: It’s Time to Hit the Reset Button on the Fiscal Debate

Michael Linden:

It’s Time to Hit the Reset Button on the Fiscal Debate: The federal budget has dominated the policy and political debate in Washington over the past three years. During this time, both the underlying fiscal landscape and the broader economic context for the debate have shifted in very important ways, yet the debate has remained remarkably static. Most policymakers, organizations, and policy leaders seem to be stuck in 2010, as if nothing has changed in the years since.

Much has changed, however, and the debate should change with it. If we are to move forward, it’s time to recognize all that has transpired in the past three years and begin the conversation anew. It’s time to hit the reset button on the entire fiscal debate.

We have come to a moment in which the prospects for progress on federal fiscal policy appear very dim…. With conservatives calling the president’s compromise offer “dead on arrival,” we remain stuck in perhaps the worst of all possible fiscal realities. We remain living with the painful, counterproductive, and near-universally derided “sequester” spending cuts. The long-term fiscal challenges remain mostly unsolved. We remain unable to use federal fiscal policy to address immediate economic problems, to say nothing of underlying structural ones. And the budget issue itself remains an obstacle to progress on all manner of unrelated policy areas….

The fiscal outlook for both the medium-term and the long-term has improved substantially compared to what it was just a few years ago. This incredible improvement has been driven by three main factors: We have enacted about $2.5 trillion in deficit reduction with about three-quarters coming from spending cuts. Health care costs have slowed dramatically in the past several years. We have a better understanding of what is driving the debt in the long-term projections.

There have also been important changes in the economic context that surrounds the entire budget debate. These include: The key argument that high debt causes slower growth has crumbled. Countries around the world have experimented with austerity, and those experiments have failed spectacularly. The U.S. economy has not healed nearly as swiftly as was projected when the budget cutting began. The push for immediate debt reduction has resulted in some perverse policy outcomes.

These changes should dramatically affect the debate on federal economic policy in general and the federal budget in particular….

In the United States we have managed to avoid the scale of austerity implemented by Greece or even the United Kingdom, but we have also suffered from ill-timed and ill-targeted cutbacks and fiscal contraction…. Putting the federal budget onto a permanently sustainable path is still an important goal; that has not changed. But so much else has…. Few policymakers or pundits have adjusted to the current reality…. The push for debt reduction has, at best, made it harder to boost economic growth; at worst, it has actively dragged the economy down. The time has come to recognize and respond to the new reality: It’s time to hit the reset button on the entire fiscal debate.

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