It’s Hard To Take The Fiscal Hawks Seriously: Testimony To The Senate Budget Committee

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By Simon Johnson

Most of the discussion of federal budget issues today is misdirected. The shorter run issues are dominated by the likelihood of another financial crisis – and the implications that would have for the budget deficit – but no “fiscal hawks” even want to acknowledge the issue. It is very hard to take anyone seriously if they refuse to look at these (uncontroversial) numbers. Medium term, we obviously need tax reform. The good news, in a sense, is that the US has an antiquated and inefficient tax system; it would not be hard to improve how this operates, raising revenue and actually reducing distortion. Longer term, Medicare is obviously a tough problem with no easy solutions yet in sight. But the argument “just cut entitlements” cannot be taken seriously.

Below is my testimony this week to the Senate Budget Committee on these issues. (This link is to a pdf version; also see this page for my testimony to congressional committees over the past 2 years).
Testimony to Senate Budget Committee, hearing on “A Status Report on the U.S. Economy”, 10am Tuesday, August 3rd (embargoed until the hearing starts).

Submitted by Simon Johnson, Ronald Kurtz Professor of Entrepreneurship, MIT Sloan School of Management; Senior Fellow, Peterson Institute for International Economics; and co-founder of http://BaselineScenario.com.<1>

A. Short-term Prospects

1) The global economy continues to improve, although at a disappointing pace. Sharp recessions traditionally produce rapid recoveries, but the damage wrought by the disruption of global credit in fall 2008 is far in excess of anything we have seen since the 1930s. This could be the slowest recovery of the post-war period.<2>


in full: http://baselinescenario.com/2010/08/05/its-hard-to-take-the-fiscal-hawks-seriously/