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Tuesday, July 07, 2015

'Boosting Growth Without Raising the Deficit'

I have been neglecting to post the things I write for MoneyWatch:

Boosting Growth Without Raising the Deficit: One of the lessons of the Great Recession is that monetary policy alone isn't enough to offset the effects of a massive economic downturn. Pushing the Federal Reserve's target interest rate as low as it can go, as monetary policy authorities did early in the recession, helped limit its severity.
But once interest rates are near zero, the Fed's power to stimulate the economy diminishes considerably. That means the Fed cannot, by itself, offset and overcome the forces pushing the economy into a severe recession. To accomplish that goal, fiscal policy also has to play a role.
Attempts to use fiscal policy, however, run into a big stumbling block: objections to the large increases in the deficit that come with tax cuts or additional government spending needed to stimulate the economy.
Even though the economics of large deficit increases to finance, say, infrastructure construction are supportive (worries that an increase in the national debt will cause interest rate spikes or other problems appear to be unfounded), the political will needed to pursue deficit spending on infrastructure or anything else simply isn't there.
But one message that did not come through very strongly in public discussions of economic policy during the Great Recession is that stimulative fiscal policy doesn't necessarily require an increase in the deficit. ...[more]...

    Posted by on Tuesday, July 7, 2015 at 09:48 AM in Budget Deficit, Economics, Fiscal Policy | Permalink  Comments (34)


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