Americans should pay little attention to those who stir up fears the country will suffer from a sharp fiscal adjustment next year and slide into recession, said Robert Reich, former Secretary of Labor under President Bill Clinton.
At the end of this year, the Bush-era tax cuts and other tax breaks are set to expire, while automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country sliding into recession if left unchecked by Congress.
Ratings agencies have expressed concern with the fiscal cliff, especially Moody’s, which said the United States could lose its coveted triple-A rating if Congress fails to narrow deficits and pay down debts.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
Policymakers, Reich wrote in his blog, should worry less about narrowing deficits when addressing the fiscal cliff and more about creating jobs.
So far, the Federal Reserve has been the only institution willing to roll out policies to spur job creation, namely those that lower interest rates, but monetary policy cannot act alone.
Government spending must play a role in creating jobs today, and lawmakers and the White House must ignore worries surrounding the fiscal cliff and widening deficits.
“It’s a mindless gimmick that presumes our biggest problem is the deficit, when even the Fed understands our biggest problem right now is unemployment,” Reich wrote in his blog.
“Hello? Can we please stop obsessing about the federal budget deficit? Repeat after me: America’s #1 economic problem is unemployment. Our #1 goal should be to restore job growth. Period,” Reich wrote.
“The Federal Reserve Board understands this. And at least it’s trying. But it can’t succeed on its own.”
Lawmakers have expressed confidence that they can work together and steer the country away from the fiscal cliff.
However, legislators have been unwilling to address tax and spending issues in an election year but some have said they could convene early in 2013 and adjust the timing and scope of tax hikes and spending cuts on a retroactive basis, especially those from a group of lawmakers chosen to tackle deficits during the debt ceiling debacle in 2011.
“The Group of Eight, four Democrat, four Republican senators that I’ve been part of for two years or more, still continues to meet and talk about what we can put on the table,” said Sen. Dick Durbin, D-Ill., according to Bloomberg.
Fed Chairman Ben Bernanke himself has said that monetary policy is not a panacea and has added that lawmakers must make fiscal reforms if the economy is to see more robust recovery.
“If the fiscal cliff isn’t addressed, as I’ve said, I don’t think our tools are strong enough to offset the effects of a major fiscal shock so we’d have to think about what to do in that contingency,” Bernanke told a press conference to address monetary policy, according to Reuters.
“So I think it’s really important for the fiscal policymakers to, you know, work together to try and find a solution for that.”
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
© 2013 Moneynews. All rights reserved.