GET INVOLVED

The current debate over extending the payroll tax cut well demonstrates that policymakers often mean different things when referring to policies that “help” or “expand” the economy. I often hear the words “stimulus” and “growth” used interchangeably, but when economists use them, we typically are making a distinction between different economic goals that apply to different circumstances.

“Stimulus” usually refers to short-term policies to increase demand for goods and services in an economy  operating at less-than-full capacity -- i.e., an economy with high unemployment. In such a recessionary economy, the problem is not a lack of productive resources (capital and labor), but a lack of demand for the goods and services that those resources produce. Under such conditions, public sector deficits -- whether through tax cuts or direct spending -- can be an effective way to increase demand (consumption) and the level of economic activity.

“Growth” usually refers to the long-term expansion of the “supply side” of the economy -- that is, the supply of capital and labor. When the economy is at “full employment,” the binding constraint on it is not the demand for goods and services, but the supply of inputs to production. Fiscal policies that are good at growing the economy over the longer term are therefore those...

The Concord Coalition this week recognized Senators Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.) for their leadership of the "Gang of Six" in the search for bipartisan fiscal reform. 

Former Sen. Sam Nunn (D-Ga.), a member of Concord's board of directors,  presented Chambliss and Warner with the 2011 Paul E. Tsongas Economic Patriot Award at the organization’s annual dinner Wednesday night in Washington.

Nunn praised both senators for their political courage, noting that each had incurred the wrath of some party colleagues for championing reform efforts that would protect the country. Chambliss called this “the issue of our lifetime” and Warner emphasized that the American public had the right to expect responsible corrective measures from their elected officials.

Concord’s 18th Annual Economic Patriots Dinner also featured a panel discussion on the fiscal, economic and demographic challenges facing the country.  The topics included the prospects for the special congressional committee on deficit reduction, which faces a Nov. 23 deadline to submit its recommendations to Congress.

Panel members expressed varying degrees of optimism or pessimism about the likelihood of effective...

Last week, AARP doubled-down on its insistence that Social Security and Medicare benefits should be off the table in negotiations to stabilize the nation’s debt. It did so in a letter to members of the deficit reduction “super committee” and in response to a Concord Coalition statement criticizing AARP’s new ad campaign, which warns that 50 million seniors will be heard from on election day if Congress even thinks about touching their benefits or asking them to pay more.
 
AARP’s further explanations are not encouraging. It continues to insist that Social Security poses little, if any, budgetary challenge because of an ample trust fund surplus and that cutting unspecified “waste” in Medicare can avoid hard choices on benefits and cost-sharing. AARP’s response to Concord’s statement:   
 

• Does not acknowledge the magnitude of the fiscal challenge we are facing or the key role...

NOTE: an earlier version of this post appears on EconomistMom.com

It would seem we have heard this so many times before that we shouldn't need to hear it again. The U.S. faces two major economic challenges at the same time: (1) an economy still desperately struggling to get out of (or avoid falling back into) recession; and (2) a fiscal outlook on such an unsustainable longer-term path that it threatens our near-term, and not just longer-term, economic health. The first is mostly a "lack of demand" problem, and the second is more about failing to keep up the supply of productive resources in our economy. The two challenges are very different and might suggest very different policy strategies, but we really can and should address both. We've heard this ("we can do both") principle many times before, but it always helps when someone as prominent as the Chair of the Federal Reserve Board makes it crystal clear in his written and oral (and official) remarks. From Bernanke's testimony before the...