Tom Keene’s EconoChat

Tom Keene Talks to Martin Feldstein


In the deficit debate, is it better to cut spending or raise taxes?
We should be cutting spending. But part of those cuts can take the form of cutting the spending buried in the Tax Code. So much that has been disguised as tax rebates, credits, and deductions is really government spending.
 
In a recent op-ed, you wrote: “Monetary and fiscal policies cannot be expected to turn this situation around.” What did you mean?
The Administration blew the chance to use fiscal policy by [introducing] a badly designed 2009 so-called stimulus package. They said the reason that people are defaulting on their homes is that they cannot afford to make their monthly payments. That misdiagnosed the problem. The problem was that for so many homeowners, the value of their house had become less than the value of their mortgage. Many came to the conclusion that it was better to stop paying and sit in the house.
 
Why does the debt ceiling debate differ from previous debates?
In the past, we have had increases in budget deficits, but there was always the expectation that within four or five years, the debt-to-GDP ratio would be declining. But the Congressional Budget Office tells us that 10 years from now, we are going to have a ratio of debt to GDP of about 100 percent. And what they are talking about, say a trillion dollars of spending cuts, sounds like an enormous number. Yet in reality, it is just a small part of the increase in the national debt.

Keene hosts Bloomberg Surveillance 7-10 a.m. ET on 1130 AM in the New York metro area and nationally on SiriusXM 113.

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