Our troubling fiscal situation

Douglas Elmendorf

Business Economics, 2019, vol. 54, issue 2, No 8, 133 pages

Abstract: Abstract Federal debt is on an unsustainable path. Low interest rates mean that we do not need to reduce budget deficits immediately and that we should do more public investment. However, we will need to make deficit-reducing changes eventually, and we should set those changes in motion now and use the extra time provided by low interest rates to phase in the changes gradually. The largest long-term changes will come through tax increases rather than spending cuts: the appetite for significant reductions in the big benefit programs is very limited among voters and their representatives on both sides of the aisle. Moreover, we should reduce deficits in ways that do not “share the sacrifice” as much as “steer the sacrifice” toward people who have been doing better. I worry that, in the next economic downturn, we will not undertake the fiscal expansion we should. We will have fiscal space in an economic sense, but I fear that too many people will pick that moment to be especially concerned about deficits (as occurred in 2011 and 2012). We have a uniquely inefficient healthcare system in this country. We probably should and probably will make more policy changes that amount to price-setting, rather than relying on market forces to hold down prices.

Keywords: Deficits; Debt; Fiscal policy; Benefits (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s11369-018-00115-2

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