Policymakers Seek Prescription For Ailing Economy

Think of the U.S. economy as a patient who is bedridden after a long illness.

At an annual policy conference this weekend in Jackson Hole, Wyo., what they're discussing is not just about how to get the patient up and hobbling around, but how to get him running wind sprints. The meeting's title is "Achieving Maximum Long-Run Growth."

Fed Chairman Ben Bernanke says there's no reason to think the economy won't get up and running again, even if it's taking longer than anyone would like. He suggests Congress and the president need to do their part, with additional programs to put people back to work.

The problem is those programs cost money, and the government is already running a big deficit. Stephen Cecchetti, chief economist at the Bank for International Settlements, warns too much government debt is like a weight on that economic runner.

"What happens is that debt gets too big," he says, "and then, if you're hit by another problem, you can't do anything about it."

So one of the challenges policymakers in Wyoming are wrestling with is how to get control of the government's red ink without kicking the economy's wobbly legs out from under it. Maya MacGuineas, who heads the Committee for a Responsible Federal Budget, echoed Bernanke, saying the government can deliver both long-term solvency and short-term economic stimulus.

"If you put in a long-term plan — and usually we're talking about 10 years here — that gives you some fiscal space in the immediate time to do a little bit more to help the economy," she says. "And it also allows you to put some of those necessary reforms in the out years. We don't have to do them all this year or next year. That buys us a way to do the recovery in the short term, debt reduction in the long term."

President Obama is expected to make the same argument when he rolls out his jobs program early next month.

Bernanke says the country's biggest long-term hurdles aren't the recession or the rescue-driven jump in deficits, but an aging population, schools that leave too many students untrained, and a health care system that's both costly and inefficient.

Harvard economist Katherine Baicker, who presented a paper this weekend called "Aspirin, Angioplasty and Proton Beam Therapy," says by focusing on smarter health care, we could save money and feel better, too.

"We wanted to focus first on getting as much bang for the buck from our health care spending as we could," she says, "and then that will be useful in thinking through whether we're spending the right amount on health care given the costs of publicly financing it."

Fiscal watchdog MacGuineas sees similar opportunities in reforming the tax code and shifting some federal spending into higher-value programs. The goal, she says, is not just to cut the government's bottom line, but to do so in a way that makes the overall economy work better.

"So you want to think about not just how do you save $4 trillion, but how you do it in a way that's consistent with growing the economy," she says.

All of this made for some thoughtful conversation in the picture-postcard setting of Jackson Hole. But University of Chicago economist Austan Goolsbee, who just stepped down as one of President Obama's top advisers, isn't sure how it will translate in Washington.

"I think among many of the policymakers and economists, there is some agreement on ways to address that," he says, "but how that plays out in the political system and especially in Washington in an environment — we're going into the election, it's been very partisan — I don't think people were overly optimistic about that."

Bernanke notes this summer's drawn-out battle over raising the debt ceiling rattled financial markets and probably hurt the economy, too. Fever-driven politics may be one of the biggest factors keeping the economy from getting out of bed.