Spending versus austerity

People are still looking to Washington for guidance on the economy, but Washington seems to be unsure what the next step should be. N.C. State University economist Mike Walden discusses what the debate is about.

“Really … it comes down to a philosophical debate about what is the best policy to address today’s economy.  On one side, you have the camp that said the economy is still weak, it still needs support from the government. That support should come from the government sort of priming the pump that is spending more money, stimulating the economy directly through the federal budget. On the other side is the camp that says, ‘No, we need exactly the opposite policy.’  They argue that the best thing to do for the economy right now is to take the unbalanced federal budget that is generating high deficits and high debt and balance it.

“They also say that we perhaps need to lower some taxes. That is to say, … we need to make the government more austere — move the government’s financial house to get it in order.  They say that if the federal government’s financial house is in order, that will lead to more certainty in the private sector. And the private sector will begin to invest and generate jobs.

“(I’m) not taking sides right now on which is the best. What is interesting is these two approaches are very far apart, and there’s not much middle ground — which will make compromise very, very difficult.”