Investors are anxious about the upcoming “fiscal cliff” the at U.S. faces at the end of this year. Bush era tax cuts expire and automatic spending cuts kick in.All of this could push the U.S. economy into a recession in first half of 2013.
So, some argue that the U.S. shouldn’t slash spending at a time when its economic recovery is still weak and that the debt and deficit problem should be taken up at a later stage.
In an interview with PBS’ Judy Woodruff, economist Kenneth Rogoff says while U.S. lawmakers shouldn’t try to unwind their debt and cut the deficit too quickly, this isn’t a problem that should be pushed further down the road:
“Well, I just don’t agree that the deficits aren’t a problem now. I agree not to bring them down too fast, that’s for sure.
But to think there’s not a long-run secular problem here, given how high our debt is, given where things are going, we could be looking at having a level of income 25 per cent lower than it would be otherwise a couple decades from now. This isn’t just a couple per cent. This isn’t like we push the problem out into the future.
It’s a big problem. But that said, obviously, we’re running a really big deficit now. Things are still very difficult. We can’t move quickly on this. It would be too painful. But I certainly wouldn’t say to go in the other direction. Don’t jump off the fiscal cliff, but on the other hand, we could potentially have a much bigger cliff coming down the road if we don’t start doing really something sooner, rather than later.”
Rogoff says the U.S. doesn’t have a “sensible tax system” or a good growth strategy, and policymakers should focus on real reform now instead of rushing to balance the budget.
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