Tags: GDP | unemployment | income | policy

Fiscal Policy Is Failing Our Economy

By    |   Friday, 03 Oct 2014 08:15 AM

Not only has monetary policy run its course, our fiscal policy is bringing our economy down.

The Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution recently unveiled its Fiscal Impact Measure (FIM), which monitors federal, state and local government expenditures, tax revenues, transfer payments, deficits, debt and employment.

Using data from the Commerce Department and the Bureau of Economic analysis, it will measure the net effect of government purchases, taxes and transfers on GDP, including the indirect effects of government activity on private consumption that follow.

In January 2009, government fiscal policy was adding 1.5 percentage points to GDP, according to the FIM. With the signing of the American Recovery and Reinvestment Act in February 2009, its contribution briefly rose to 3 percent by mid-year. However, by 2011, this figure fell precipitously to -1 percent, and has ranged between -0.5 percent and -1 percent ever since. For perspective, the only negative readings from 2000 through 2009 occurred in 2006, when it reached -0.25 percent.

As a result, the labor market remains extraordinarily weak. While unemployment stands at 6 percent, the underemployed represent 12 percent, and 2.5 percent of adults aged 25 to 64 left the labor force since the inception of the 2008 Great Recession.

Most of these individuals probably would prefer to work full time or in higher-level positions that they are qualified to perform. In addition, college graduates who enrolled in graduate school due to a poor labor market are also excluded from the unemployment rolls. Therefore, the real unemployment rate may hover close to 20 percent.

My tax proposal would provide incentives to increase gross private domestic investment and capital formation. This would manifest in greater employment, higher incomes and lower debt, while limiting inflation and balancing the budget.

It's time to rethink our fiscal policy in a major way.

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Not only has monetary policy run its course, our fiscal policy is bringing our economy down.
GDP, unemployment, income, policy
306
2014-15-03
Friday, 03 Oct 2014 08:15 AM
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