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Recent Fiscal Policy: Its Impact on the Economy and the People in It

Recent Fiscal Policy: Its Impact on the Economy and the People in It. Jared Bernstein CBPP 11/7/13. The Problem…. Shampoo Economy: Bubble, bust, repeat Prevention and treatment

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Recent Fiscal Policy: Its Impact on the Economy and the People in It

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  1. Recent Fiscal Policy: Its Impact on the Economy and the People in It Jared Bernstein CBPP 11/7/13

  2. The Problem… • Shampoo Economy: Bubble, bust, repeat • Prevention and treatment • Prevention: adequate oversight of financial markets; faster, more equitable growth; investment in “supply-side.” (To be clear, that’s not “trickle-down!) • Treatment: what must of this presentation will be about—the use of fiscal and monetary policy to offset demand contraction. • First, new information on the costs of getting this wrong • Second, documentation of impacts • Third: bold assertion—I’ve never seen worse economic policy. • Fourth: what to do about it.

  3. RWW—Fed Economists on impacts of policy neglect Source: Reifschneider, Wascher, and Wilcox, 2013

  4. Impact of Fiscal Policy in Recent Years • Recovery Act • Pivot to Deficit Reduction, both here and abroad • US Budget Deficit down from 10% in 2009 to 4% in 2013: Largest 4-year decline since 1950! • But isn’t deficit reduction imperative? • CDSH: cyclical doves, structural hawks. • Most recent fiscal drag: BCA, sequester, shut down…dysfunction

  5. Source: Eurostat

  6. Actual and Projected US Deficits as a Percent of GDP, 2001-2023 Source: CBPP based on Congressional Budget Office, May 2013 baseline.

  7. All Very Macro: What About…Um…People!? • Wage and Income Trends • Impact of budget cuts on services.

  8. Impacts of Shutdown (coals to Newcastle?)

  9. On the other hand: Safety Net Works!

  10. So, What’s The Solution? • Separate fact from ideology: fiscal policy works, dysfunction doesn’t. • Restore the role of government to its proper place—it is a complement, not a substitute to private economy. • Balanced fiscal policy: CDSH • Stop hampering recovery! We need to hit escape velocity! • What are the real problems we face: slow growth (RWW), inequality, immobility, opportunity deficit (again, safety net helps here!) • Forward thinking: Full employment

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