An Economic Disaster Of Our Own Making

Posted on January 20, 2013

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“The quality of U.S. fiscal institutions has deteriorated. Recent actions by Congress and Presidents indicate no willingness to recognize limits to debt and to engage in fundamental fiscal reform. They have reacted to each deadline, such as the recent fiscal cliff, by taking minimal action and delaying fundamental reform that would stabilize the debt ratio. The fiscal cliff problem was addressed by delaying decisions about cutting spending for two more months. The legislation intended to demonstrate fiscal discipline added insult to injury by including tax breaks to various industries, including NASCAR racing tracks, which will increase future fiscal deficits.

As a result of fiscal procrastination, the debt gets larger and the government limps on until it faces the next fiscal deadline. In the words of President Obama: “We’ve got to stop lurching from crisis to crisis to crisis.” The Congressional debt limit has already been reached, and the sequestration will be reached in March. This awkward fiscal process cannot contribute to either short-run or long-run stabilization of the economy. The proposal for the Treasury to produce a trillion dollar coin is a gimmick that represents the extreme desperation of some members of Congress”. (Thomas Grennes writing in “EconoMonitor”)

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