How To Rev Up An Economy Stuck At 'Stall Speed'

The American economy is aloft, says economist Nouriel Roubini. But barely.

"The economy is growing so slowly that like a plane that is slowing down very fast, it might reach a point of falling off the cliff," he tells NPR's Guy Raz.

A Different View

Economic historian Niall Ferguson tells NPR's Guy Raz that a second stimulus would carry with it a tremendous risk.

The New York University economist has a prescription for Washington: Cut payroll taxes for two years, extend the Bush tax cuts for everyone but the rich, and pass another stimulus bill.

"In my view, if we could do another stimulus with a commitment to obtain fiscal discipline over the long term, then we can square the circle between the need for a stimulus in the short run," he says. "Over the course of the medium term, we have to deal with these budget deficits."

But he acknowledges that's not likely in the current political climate. He says a more feasible alternative — one Congress might be able to pass even if the GOP takes control in November — would be a reduction in the payroll tax for a few years. If companies lost less to taxes, Roubini says they would hire more workers.

"Over two years I would say we could certainly afford a $200 billion cut" to payroll taxes, he says.

Roubini says his proposal could also be made budget-neutral by allowing the Bush-era tax cuts for the wealthiest Americans to expire at the end of this year.

But the most effective solution for an economic stall is also likely to be the most unpopular. Roubini says it's modeled on a policy employed during the Great Depression.

"We essentially reduced the principal value of consumer debt for those households that are essentially insolvent," he says. "It will be the only way to restore economic growth on a faster basis."

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