When Is the Best Time to Hold a Fiscal Crisis?
May 23, 2011
When is the best time to hold a fiscal crisis? The obvious answer might seem to be: never. But if that is what lies in the future for the United States, is it better to face that future sooner or later? For the country as a whole, there are a number of reasons to prefer sooner, says Philip I. Levy, a resident scholar with the American Enterprise Institute.
First, the longer fiscal adjustment is postponed, the greater and more painful the ultimate fix needs to be. The debt burden rises over time and inescapable interest payments rise with it.
Second, crises can occur at inopportune moments. The global financial crisis that exploded in September 2008 came at a particularly bad time.
So why not move quickly to address an impending fiscal crisis?
- If you are an incumbent politician, later can look better than sooner;you might hope that something unexpected will come along to avert the crisis, such as a global economic boom.
- If you choose to address the crisis sooner and successfully avert it, there will inevitably be those who wonder whether all the painful adjustment was really necessary and whether the crisis would have taken place at all.
- This may be the case in Britain, which took serious steps to address its fiscal imbalance this past year.
Back in the United States, at present, commentators have heaped scorn on Republicans for daring to play chicken with the debt ceiling, calling it wildly irresponsible. If U.S. political leaders do not act now to address the growing federal debt, when is the next propitious moment?
- Given the president's reluctance to put forward or embrace viable fiscal solutions, the debt ceiling looks like one of the very few options for forcing an adult conversation about fiscal imbalances in the near future.
- Critics are correct that this approach risks a crisis, but that's really just a question of timing.
- If the confrontation prompts a serious approach to fiscal issues, that may be the country's best hope of avoiding a crisis altogether.
Source: Philip I. Levy, "Scheduling a Crisis," American Enterprise Institute, May 16, 2011.
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