Cap-and-Punt: No Way Out

Bracing for more economic shocks from Europe, the U.S. urgently needs a barbell fiscal policy.

Crashing_Arrow_SmallBracing for more economic shocks from Europe, the U.S. urgently needs a barbell fiscal policy. That is, more immediate stimulus and more deficit reduction that is designed to take effect over time.

Unfortunately, policy makers are failing on both sides, mostly ignoring the need for additional stimulus while also becoming enthralled with the wrong kind of future deficit reduction.

History shows the United States is capable of setting deficit reduction for the future and sticking to it — as long as the delayed measures are specific and gradual. But it is also possible to set up future budget cuts that have little chance of actually happening and therefore lack credibility.

It’s much easier to slap a cap on spending than to get into the weeds of making policy changes to constrain that spending.

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Source: Peter Orszag | Bloomberg