Transcript 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
• 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.
RWW—Fed Economists on impacts of policy
neglect
Source: Reifschneider, Wascher, and Wilcox, 2013
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 4year decline since 1950!
• But isn’t deficit reduction imperative?
• CDSH: cyclical doves, structural hawks.
• Most recent fiscal drag: BCA, sequester, shut down…dysfunction
Source: Eurostat
Actual and Projected US Deficits as a Percent of GDP, 2001-2023
Source: CBPP based on Congressional Budget Office, May 2013
baseline.
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All Very Macro: What About…Um…People!?
• Wage and Income Trends
• Impact of budget cuts on services.
Real Median HH Inc, Non-Elderly HH's
2012 $’s
66,000
64,000
62,000
60,000
58,000
56,000
54,000
52,000
50,000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
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2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Impacts of Shutdown (coals to Newcastle?)
On the other hand: Safety Net Works!
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