Fiscal stimulus packages can improve the U.S. economy without damaging it and should never be rejected on grounds of ideology, says Yale economist Robert Shiller.
"Fiscal stimulus is actually very useful and appropriate in the current circumstances," Shiller writes in a New York Times column.
Tax hikes and public spending aren't popular ideas right now, Shiller admits, but they should be, at least in longer-term planning.
"Granted, they won’t balance the budget immediately; trying to do so would damage the economy. Instead, we should plan to restore budget balance eventually, with matching additions on both sides of the ledger."
The debate over whether to lift the $14.3 trillion government debt ceiling and avoid default has deflected national attention away from growing the economy and creating jobs, Shiller adds.
A healthy balance of spending adjustments and revenue hikes can right the economy while lowering the country's debt burdens.
"As a matter of simple math, balanced tax and expenditure increases would lower the ratio of debt to gross domestic product. That’s because the numerator (debt) is unchanged while the denominator (GDP) increases. As a result, the policy would tend to strengthen the Treasury’s credit rating and restore confidence in the government."
Ratings agencies say the debt problem could costs the country its AAA credit rating, which JP Morgan says could add $100 billion a year to government costs while dragging down economic growth, Bloomberg reports.
"That $100 billion a year is money being used for higher interest rates, and that's money being taken away from other goods and services," says Terry Belton global head of fixed-income strategy at JPMorgan.
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