Monday, March 28, 2011

Economists on the Budget Deficit

Recently, a group of 10 former Chairs of the President's Council of Economic Advisers (from both parties) signed an open letter (here) calling on President Obama and Congress to give "prompt consideration" to recommendations (here) the bipartisan National Commission on Fiscal Responsibility and Reform (NCFRR), chaired by Alan Simpson and Erskine Bowles. Eleven of the 18 Commissioners voted in favor of the recommendations, but they have received almost no attention from either the White House or Congress. The former CEA Chairs do not necessarily agree with each and every recommendation by the NCFRR, but they are promoting them out of concern over the "unsustainable long-run budget outlook" that "is a growing threat to our well-being."

Today, another former Chair of the CEA, Nobel laureate Joseph Stiglitz, explained in no uncertain terms why he did not sign on to the group letter (here). In his view, the Commission's recommendations, if adopted, would constitute a "near suicide-pact" for the US economy. They would slow still sluggish economic growth and diminish tax revenues, while improving the deficit picture hardly at all.

What would Stiglitz do instead? He would increase jot-stimulating spending, especially on much-needed infrastructure improvements, raise marginal tax rates for the highest earners, who are the only taxpayers to have prospered during the past two decades, eliminate defense projects that the Defense Department does not need or want, and cut "corporate welfare" (the only form of welfare the Republican majority in Congress seems intent on maintaining).

My guess is that most Keynsians (like me) will stand with Stiglitz. Anti-Keynsians will likely side with the other former CEA Chairs, including those from the Bush Administration who are partly responsible for exploding the budget deficit and turning a blind eye to malfeasance in the financial sector.

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