By enacting tax cuts that will add to the national debt, “Washington could be trading more growth now for the risk of more pain down the road,” The Wall Street Journal’s Nick Timiraos warns.
Timiraos points to a new analysis co-authored by Christina Romer, who chaired the Council of Economic Advisers under President Obama, showing that fiscal wiggle room makes a difference in responding to a downturn.
“The study evaluated the economic performance of 24 developed nations after financial shocks since 1967. The study found countries with lower debt-to-GDP ratios responded more aggressively, and countries that used all of their available tools to cut rates and stimulate growth saw modest declines in output. Countries without the space to ease fiscal or monetary policy suffered larger contractions.”