How To Rev Up An Economy Stuck At 'Stall Speed' Economist Nouriel Roubini warns that without significant government action, the U.S. economy "might reach a point of falling off a cliff." His prescription: Cut payroll taxes for two years, extend the Bush tax cuts for everyone but the rich, and pass another stimulus bill.
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How To Rev Up An Economy Stuck At 'Stall Speed'

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

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

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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GUY RAZ, host:

Welcome back to ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.

As I mentioned a few moments ago, we've been canvassing some of the best-known economists in America recently on this program, and we've been asking them for ideas on how to tackle slow growth and high unemployment.

Now, Nouriel Roubini famously predicted the housing collapse a year before it began. And now, he says without a few simple policy moves, our economy will head towards what he calls stall speed.

Professor NOURIEL ROUBINI (Economics, New York University; Chairman, Roubini Global Economics): Stall speed is a situation in which 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. So it's going to feel like a recession, even if technically we are out of it.

RAZ: Nouriel Roubini, over the past few weeks, we've been sort of canvassing economists, asking them what their policy prescriptions are to get the economy back and running.

A lot of them are talking about another stimulus. We just heard from Niall Ferguson, who says that putting more money into the economy is actually dangerous because investors could think that our fiscal policy has gone out of control. Does he have a point?

Prof. ROUBINI: He might have a point only in the very long run. Of course, we cannot run a trillion-dollar deficit. But in the short run, there is a risk of a double dip. So 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 while, of course, over the medium term, we have to deal with these budget deficits.

But for the time being, domestic and international investors are willing to finance the U.S. We are still able to finance these very large fiscal deficits.

RAZ: Now, you argue that a second stimulus, a 500 or $700 billion stimulus, is not politically realistic, even though some economists are calling for that. How can the Obama administration stimulate the economy without spending money?

Prof. ROUBINI: I've proposed that a targeted reduction in the payroll tax for a couple of years to reduce the cost of labor for firms. Firms are not hiring workers, and because of that, there is no labor income, and there is not enough consumption growth.

And we could finance essentially these tax cuts on the payroll tax by letting the tax kind of cuts for the rich that are expiring at the end of the year to expire. So we could make it revenue and budget neutral.

RAZ: So if you have payroll tax breaks for employers and employees for, let's say, two years, how much would that cost?

Prof. ROUBINI: Over two years, I would say we could certainly afford a $200 billion cut.

RAZ: But would it be enough to stimulate the economy to the point where it needs to be stimulated? Last week, we spoke with Paul Krugman. He argues that economists shouldn't pay attention to politics; they should focus entirely on policy. And his policy prescription is you need to pour in a lot more money into the economy.

Prof. ROUBINI: Well, this is one of the policy option. We can have a payroll tax cut. I think that a broader fiscal stimulus package might be necessary, especially because the politics of it after November is going to be harder.

You know, the term stimulus has already become a dirty word, even within the administration, let alone with the Republicans gaining in Congress. The two parties are divided, and they'll be even more divided. And this gridlock means that we're going to see, worst of all worlds, no fiscal stimulus in the short run and not addressing the medium-term fiscal deficit problem over the medium and long term.

RAZ: That's New York University economist Nouriel Roubini. He's a co-author of "Crisis Economics: A Crash Course in the Future of Finance."

Nouriel Roubini, thank you so much.

Prof. ROUBINI: Pleasure talking with you today.

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