Time is Money
By Amy Willis
Tough talk on taxes and spending in this episode, as Russ sat down with Harvard’s Alberto Alesina to talk about the promise and perils of austerity. Which is better to shore up a nation’s fiscal situation- tax increases or spending cuts? How long are government deficits sustainable? What’s unique about the case of Greece?
1. What’s the difference between “strategic” and “oh my gosh!” austerity? Under what circumstances does each arise? Is one more dangerous- or more promising- than the the other?
2. What is the “narrative approach” Alesina describes? To what extent do you think this is a better methodology for analyzing the effects of fiscal policy?
3. At the end of the conversation, Russ poses a huge political economy challenge in the discussion of the future effects of entitlement programs such as Medicare and Social Security. Both he and Alesina argue that Congress will need to take some form of action, but little incentive exists to do so right now. So…Should economists and/or pundits “spread the terror” to the public in order to incentivize Congress to act? Why or why not, and if yes, what form should this take?
4. Why do you think Alesina and Krugman disagree over the effects of austerity? Is there a way to resolve the disagreement?