Glenn Hubbard Joins the Announcement Effect Club
In a Bloomberg Op-Ed today, Glenn Hubbard, a former Chair of the Council of Economic Advisors under former President George W. Bush, joined the Announcement Effect Club. In his Op-Ed, Hubbard says that in order for the economy to begin growing, a long-term plan addressing our major structural reforms has to be implemented. Hubbard notes that the tax code is a mess, that short-term policies create business uncertainty, and the general uncertainty that looming deficit reduction create is hurting the economy.
As he notes, "The key, then, to any effort to boost the economy is to craft a short-term “stimulus” in the context of a longer-term structural reform plan that clarifies the deficit and debt path for the U.S" He also argues that there is no conflict between near-term stimulus and long-term deficit reduction.
As he writes:
Bear in mind that these structural reforms do not imply that all near-term stimulus must be off the table, only that any stimulus proposal be linked to longer-term fixes. For example, suppose that policy makers announced a credible reduction in future deficits caused by Social Security through a combination of gradual increases in the retirement age and slowing the growth in benefits for higher-income households. The enormous fiscal improvement from such a change would give leeway to strengthen Social Security benefits now for the least well-off and provide substantial incremental resources for training and re-employment of the long-term jobless.
Likewise, credible, gradual broadening of the base in the tax system by reducing tax expenditures on, say, housing and health insurance would give leeway to support business investment now with investment incentives and a much lower corporate tax rate. Or, as Obama has proposed, an infrastructure spending program could be made a high priority, but coupled with longer-term reductions in social spending.
Much of the debate over the stimulus paints economists and officials like myself, those concerned about the long term, as favoring inaction for (and perhaps indifference to) pressing short-run problems. This is a false choice: Enhancing a recovery in productivity and employment is a pressing policy need. Yet turning around the economy now also depends on grasping our structural problems and defining a policy for long-term reform and growth.