Long-Term Fiscal Reform Looms Large Over Policymakers At Home And Abroad

Health Care Costs, Not The Deficit, Pose Threat To US Growth
Alan Blinder, a former Federal Reserve Board vice chairman, considers the real danger to the US economy long-term health care costs more so than deficit. According to Blinder, the U.S. government still has no short-run borrowing problem.

” On the contrary, investors all over the world are still clambering to lend us money at negative real interest rates,” but he adds, “The truly horrendous budget problems come in the 2020s, 2030s, and beyond.”

His argument is that deficit reduction cannot simply be achieved by raising revenues, but will require that “spending cuts must bear most of the burden.” The greater threat to economic growth, contends the Harvard economist “is that there is only one overwhelmingly important factor pushing federal spending up and up and up: rising health care costs.”

In Terms Of The Debt, Size Is Not All That Matters
Former Federal Reserve Board economist writes in the Financial Times that the size of the debt is important, but is not everything.

“It matters a great deal how the government taxes and spends, not just how much. The US debt level is a constraint. A growing number of empirical studies, including my own joint work with Carmen Reinhart, suggest that the US has already reached a debt level that has been associated with slower growth in advanced countries. The fact interest rates are low today does not necessarily mean the US is an exception to this rule – take one look at stagnant Japan’s rates,” Rogoff believes.

Structural Reform Emerges As Concern At Davos
Rogoff’s concern about long-term structural reform was also on the minds of attendees at the World Economic Forum in Davos, Switzerland.

Conferees may have felt a sense of relief that the US avoided the fiscal cliff, they remained anxious “that Washington has only postponed its day of reckoning, in the same way that Europe little more than a year ago was accused by commentators of ‘muddling through’ its sovereign-debt crisis by ‘kicking the can down the road,'” reports Jonathan Buck in Barron’s.

Has The World Economic Forum Jumped The Shark?
Financial analysts, social entrepreneurs, and other global leaders gathered this week in Davos to discuss and debate the state of the global economy. As was the case last year, articles are written about ritzy events and the activities of “the elites.” Which begs the question of whether Davos remains relevant in a world of conferences?

Ian Bremmer defends Davos in Foreign Policy, which he sees as a unique opportunity to gain insight from “some of the most powerful and intelligent people in the world in one place,” including sitting prime ministers and presidents, such as Shimon Peres of Israel, Mario Monti of Italy, David Cameron of Britain, and Angela Merkel of Germany.

He also underscores the value in hearing from the “guys you’ve probably never heard of — guys like Carl Ganter, who I’ve befriended here. Carl runs Circle of Blue, an organization that provides data on the world’s water crises. He’s one of the smartest guys in the world on the question of dwindling water resources, and is particularly attuned to how water shortage exacerbates risks pertaining to food, energy, and health.”

Davos, however, faces stiff competition from other conferences, such as TED, the Aspen Ideas Festival, and the Clinton Global Initiative.

Time magazine’s Roya Wolverson sees Bremmer’s point, but is more skeptical that the WEF is keeping up with those other forums.

“Without bright faces to set the scene at Davos, the fresh corporate blood needed  to pay the conference’s bills may start to fall off in years to come. That’s why, about a decade ago, WEF started importing a subsidized set of ‘tech pioneers,’ young promising start-ups deemed to be disruptive in their  field. In 2005, WEF moved on to recruiting an under-40 set they call Young Global Leaders. Last year, they upped the ante with an under-30 crowd they pay to  fly in called ‘Global  Shapers.’ Whether the recruiting campaign will pay off remains to be seen,” she writes.

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