Fiscal Space, Stimulus and Entitlement Cuts

Given the weak economy, how do we balance our need for economic stimulus now with our need to get our fiscal house in order to prevent the age and health-related tsunami? Can we address both our short-term and long-term problems at the same time? 

In a recent article, the IMF's chief economist Olivier Blanchard offers some relevant food for thought.
 
According to Dr. Blanchard, a cut in the future growth rate of entitlement programs can substantially increase the "fiscal space" for continuing stimulus, if done at the same time. (The stimulus will of course have to be phased out eventually.) While the U.S. was not singled out, this may be important advice for us to keep in mind as we prepare our Fiscal Recovery Plan. (See CRFB's call for a Fiscal Recovery Plan.)

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Congress Should Avoid a Costly End-of-Year Package

With debt nearing record levels, interest payments surging, and major trust funds approaching insolvency, Congress should avoid worsening our already unsustainable fiscal situation during the Congressional lame duck session. Instead, lawmakers should begin making progress on the debt either by enacting savings or implementing process reforms.

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