The Real Fiscal Crises: It’s Not What Politicians Are Telling Us

by Stuart Shapiro

Simon Johnson, the former chief economist of the International Monetary Fund (or as the Republican Party would call him, “an out of touch elitist”), has added his voice to the chorus of economists who argue that our focus on deficit reduction is misplaced.

The United States faces some serious medium-term fiscal issues, but by any standard measure it does not face an immediate fiscal crisis. Overly indebted countries typically have a hard time financing themselves when the world becomes riskier — yet turmoil in the Middle East is pushing down the interest rates on United States government debt. We are still seen as a safe haven.

Johnson goes on to point out that the long term crises are the continued incentives for banks to take economy-endangering risks, our rising health care costs, and our antiquated tax code.  I would put health care costs as #1 and the tax code as a concern but not an existential issue.  This is semantics though.  The key point though is that economists are coalescing around the idea that focusing on deficit reduction is misplaced and it may be harmful.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.