Editor’s note: GPS sits down with Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, to discuss U.S. political gridlock and the cyber threat to the U.S. economy.
The 112th Congress has been dismissed by many as the ultimate do-nothing Congress. How much is the gridlock in Washington hurting the U.S. economic recovery?
It’s hurting a lot and, unfortunately, a lot of things that need to be done aren’t getting done. For example, I would like to see Congress pass a version of the Simpson-Bowles tax reform proposal. By far the most efficient way to collect more tax revenue would be to drastically reduce exemptions (“tax expenditures”) thereby raising more revenue while keeping marginal tax rates at a reasonable level. With private investment weak, this is a good time for the government to undertake high-return infrastructure projects with a compelling cost-benefit ratio. But the rationale is to improve the long-run growth potential of the economy, not to engage in pure Keynesian stimulus. While I strongly favor instituting a carbon tax, there is some urgency in refocusing our energy program to recognize the huge innovations that are allowing the U.S. to harvest unconventional sources of gas and (secondarily oil) that promise to make the United States far less dependent on imported energy. In principle, our low energy prices could even catalyze a return to the U.S. of some types of manufacturing.
Of course, the Congress has been gridlocked for some time. This gridlock didn’t matter so much during the credit bubble; the economy was growing briskly despite – or perhaps because of – limited government intervention or innovation. But we’ve reached a point where there’s been so little reform for so long that it’s a hindrance to growth. And, in the near term, things only seem to be getting worse, with ugly partisanship clearing out the center in both major parties.