Fiscal Space, Stimulus and Entitlement Cuts

Aug 21, 2009 | Social Security

Given the weak economy, how do we balance our need for economic stimulus now with our need to get our fiscal house in order to prevent the age and health-related tsunami? Can we address both our short-term and long-term problems at the same time? 

In a recent article, the IMF's chief economist Olivier Blanchard offers some relevant food for thought.
 
According to Dr. Blanchard, a cut in the future growth rate of entitlement programs can substantially increase the "fiscal space" for continuing stimulus, if done at the same time. (The stimulus will of course have to be phased out eventually.) While the U.S. was not singled out, this may be important advice for us to keep in mind as we prepare our Fiscal Recovery Plan. (See CRFB's call for a Fiscal Recovery Plan.)