Quite a few analyses of the sequestration cuts have noted that they do little to address the sources of longer-term budget deficits, which are mainly the result of expected health care costs.
Matt Slaugher of Tuck Business School and Matthew Rees of Geonomica argue something similar but take a slightly different approach, emphasising which generations the cuts are punishing most: Read more
Janet Yellen notes that fiscal policy has been less of a tailwind in the latest recovery relative to the average of four previous US recoveries:
In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries, as exhibit 3 indicates. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits. … Read more
There’s only one thing we know for sure about next year’s campaign for President: the winner will have no time to celebrate.
But before we get to that, here are some of the key issues that affect how much fiscal drag the US economy will confront in the next couple of years (all numbers courtesy of Nomura analysts). Below, for various major spending items, we’ve listed the expected decline relative to the prior year. Read more
Or, if Ben won’t budge, then what?
We closed our last post by writing that “if policy is needed to offset household deleveraging and the corresponding reluctance of businesses to spend, help would have to come from the fiscal side.” Read more