On the Econbrowser blog, University of Wisconsin economist Menzie Chinn argues that there is no painless way to fix the debt crisis that afflicts both our government and the national private sector economy.
The only realistic fix, Chinn contends, involves increased federal revenues. As things stand now, reduced federal spending is likely to worsen recession and thereby reduce federal tax revenues even more.
“We lost the first decade of the 21st century by squandering our wealth and borrowing as if there was no tomorrow,” Chinn writes. “We risk losing this decade to an incomplete recovery and economic stagnation.”
He is among many economic analysts who note that the downgrade in the U.S. credit rating, being dubbed the “Obama Downgrade” by Republicans, is largely due to our government’s apparent inability to increase its revenue. Among other things, Standard & Poor’s analysts noted that they no longer expect the Bush tax cuts to be allowed to expire.
Chinn (and S&P) also note that the President and Congress have postponed any meaningful action on controlling the growth in Medicare, Medicaid and Social Security spending.
Chinn is excerpting his column in the New York Times, co-authored with Jeffry Frieden, professor of government at Harvard.