Principles of Macroeconomics News Analyze

Macroeconomics in the News

In her recent article The 'Go Fast' and 'Go Big' Fiscal Challenges, economics professor Laura D'Andrea Tyson uses a combination of straightforward language and complex terminology to explain the intricacies of our nation's current budgetary crisis. With the January 1st deadline for the so-called "fiscal cliff," a $600 billion package of mandatory spending cuts and tax hikes, fast approaching, Tyson proposes that America's economic plight is actually twofold when the impending debt ceiling debate is also considered. Through a comprehensive analysis of the various factors affecting the debate, including stagnant unemployment rates, entitlement reforms to Medicare, Medicaid and Social Security, and the eventual impact of the Affordable Care Act, the author presents her case for a macroeconomic-based approach to balancing the budget, reducing the national debt, and leveling the playing field in terms of taxation.

Analysis: These esoteric concepts may sound like mere abstractions, but the ongoing debate over the fiscal cliff clearly illustrates the importance of gaining a competent comprehension of macroeconomics. If the federal deficit is not reduced in the next decade, it is all but assured that my children will be forced to bear the financial burden of the prior generation's lack of fiscal responsibility. The current recession has been devastating to American families, and especially students, single parents, and other people with limited incomes, so for legislators to willingly push our economy to the brink of a second recession borders on criminal negligence. Rather than resort to petty bickering based on party lines, our elected leaders should heed the objective advice of economic analysts like Tyson, who advise a moderate approach to solving the fiscal cliff crisis. If both sides are willing to recognize the merits of their opponent's position, a balanced budget plan consisting of increases to the marginal tax rate for the highest earners in America, along with necessary spending cuts by government programs that can be streamlined, the federal government can achieve an economic climate similar to the second Clinton administration. By returning to the Clinton-era tax rates for the rich, while reducing wasteful expenditures in military and entitlement spending, revenues would return to healthy levels while spending decreased, and this combination could eventually lead to the erasure of our current deficit and a return to the budget surpluses we enjoyed toward the end of the 20th century.

Key Macroeconomic Terms in the Article:

Deficit Reduction -- "The tax code should be reformed to make it simpler, fairer and less distortionary and to raise revenues for deficit reduction."

Federal Budget -- "… negotiations about a go-big framework for deficit reduction have focused on cutting at least $4 trillion from the federal budget over the next decade."

Deficit Spending -- "On the spending side, "go big" bipartisan proposals for deficit reduction, such as the Simpson-Bowles and Domenici-Rivlin plans, focus on curbing the growth of Medicare, Medicaid and Social Security."

Fiscal Policy -- "That's why a political deal to address the fiscal cliff and the debt limit in the near-term should be linked to a credible framework to put fiscal policy on a sustainable path in the long-term."