Laura Tyson echoes the message at the end of the post below this one (here too):
The Trade-Off Between Economic Growth and Deficit Reduction, by Laura D’Andrea
Tyson, Commentary, NY Times: ...After three years of recovery, the economy
is still operating far below its potential and long-term interest rates are
hovering near historic lows. Under these circumstances, the case for
expansionary fiscal measures, even if they increase the deficit temporarily, is
A recent study
by the International Monetary Fund finds large positive multiplier effects of
expansionary fiscal policy on output and employment under such circumstances.
... The rationale for expansionary fiscal policy is particularly compelling for
federal investment spending in areas like education and infrastructure...
The economy does not need an outsize dose of fiscal austerity now; it does need
a credible deficit-reduction plan to stabilize the debt-to-G.D.P. ratio
gradually as the economy recovers. As I contended in an
earlier Economix post, the plan should have an unemployment-rate target or
trigger that would postpone deficit-reduction measures until the target is
The goal of deficit reduction is to ensure the economy’s long-term growth and
stability. It would be the height of fiscal folly to kill the economy’s painful
recovery from the Great Recession in pursuit of this goal.
Posted by Mark Thoma on Friday, December 14, 2012 at 01:53 PM in Budget Deficit, Economics, Fiscal Policy, Unemployment |