Economists See Better Days Ahead

“Regarding fiscal policy, the economists generally believe the near-term focus should be the promotion of economic growth rather than deficit reduction. The majority of the respondents also do not believe another stimulus package is necessary but think the various tax cuts should be extended beyond their scheduled expiration at year-end.”

The well-to-do may take some comfort in that because they are slated to carry the greatest burden of tax increases.

The group’s majority have adopted the centrist position that a slowdown in growth will bring down the rate at which prices rise but that low interest rates will eventually lead to bubbles like the one in housing that did so much to hurt the credit system in 2008. The view is only reasonable if low interest rates from the Fed do indeed stimulate growth and Fed purchases of US paper work to prevent a GDP double dip.

But a darker view of the economy’s future has begun to emerge and is a vocal minority now. This group may become the majority among economists if GDP falters considerably in the second half. These experts argue that current plans to right the economy are much too passive and will cause several years of stagnant growth and high unemployment.

Those who responded to the poll have gotten the issue of the balance between stimulus and the deficit right. There is absolutely no evidence that efforts to drop the deficit will do anything other than take the fuel to improve the economy out of the financial system. The gamble, therefore, is that government support of expansion will cause an increase in the tax base that will help bring down the deficit in the second half of the decade. It is a risky gamble, but it is the only one that can succeed in preventing a decade-long stagnation of the US economy.

Douglas A. McIntyre