Solving the Debt Crisis is Easy
As one who teaches Economics 101 and, as a professor and international consultant who makes a career out of giving macroeconomic advice to other countries, I find the current impasse in the United States both appalling in its potential risks and frustrating in the simplicity of the solutions that are hardly even talked about.
The implications of a U.S. government default are far bigger and far more uncertain than most accounts would have you believe. We would be kicking an economy that is already in a fragile state. A worldwide financial meltdown is just one of the scenarios that become possible to imagine.
How to get out of this fix? Certainly the easiest solution in the short run would be for Congress to pass the one sentence of legislation required to raise the debt ceiling. But if a solution “requires” multitrillion dollar spending cuts, then we should be careful what we wish for.
Were I advising a low-income country that had no choice but to listen to my advice, I would have a simple message: “You got into this mess by passing huge tax cuts over the past 10 years and starting two wars that clearly have gone as far as they are going to go in terms of achieving your goals. So just let those tax cuts expire next year and end the two wars, and you will have done more to reassure long-term investors than anything else you could possibly do. That will give you the room you need to make investments to start growing again.”
[Excerpts of article by Steven Kyle, former staff economist at the World Bank and professor of applied economics at Cornell University]