Fiscal Balancing Act

Original Posted by The Peter G. Peterson FoundationJanice Eberly (Northwestern University, NBER) and Phillip Swagel (University of Maryland) Though many argue that we face a binary choice between either growing our economy or stabilizing our long-term fiscal position, in a new paper commissioned by the Peter G. Peterson Foundation, a bipartisan team of leading economists explores how policies to achieve economic growth and fiscal stability are related and complementary. In “Fiscal Balancing Act,” economists Janice Eberly and Phillip Swagel look at ways to balance existing federal commitments with the need to invest in our future, examining a range of short- and long-run policies aimed at creating an environment for broadly-shared income gains, greater competitiveness and social mobility.Key Findings from “Fiscal Balancing Act”

• America’s economic health is closely tied to its fiscal health. A strong and stable economy with sustained job creation and broadly-shared growth requires a foundation of fiscal responsibility. Likewise, a solid long-term fiscal foundation is supported by a growing, thriving economy. A well-targeted, balanced fiscal adjustment is thus not only a budget issue; it is an issue of long-term productivity and growth.
• Our long-term fiscal picture remains unsustainable. While the U.S. fiscal position has improved in recent years as we have emerged from the Great Recession, long-term sustainability has not been achieved, and economic growth remains below desired levels.
• Addressing the long-term fiscal imbalance can support economic growth and job creation. A gradual fiscal adjustment would provide a foundation for economic growth and stability, creating room in the budget for activities that promote broadly-shared income gains and mobility. Effective and well-targeted public investments contribute to prosperity by enhancing productivity and by creating an economic environment in which the private sector can thrive.
• Flexibility for future policymakers. Putting our long-term fiscal house in order during “good” times will give future policymakers more flexibility to use fiscal tools to support growth and job creation during the “bad” times. A stable and sustainable fiscal position, therefore, both ensures the ability to address future slowdowns and sets an economic foundation for long-run growth and prosperity.
• Fiscal adjustment should be gradual, fair, and protective of the most vulnerable. Fiscal policy changes should be implemented gradually as the economy improves and monetary support is correspondingly withdrawn. Because fiscal tools help to establish the safety net we value, fiscal adjustment should protect the most vulnerable and those least able to adjust to these changes.

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