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America’s Looming Fiscal Battle

US President-elect Joe Biden has pledged to “build back better” from the pandemic-induced economic crisis, and has chosen the widely respected former Federal Reserve Chair Janet Yellen to be Secretary of the Treasury in his administration. But Yellen’s bipartisan appeal will not smooth the treacherous fiscal path that Biden will have to navigate between suddenly “prudent” congressional Republicans and the left of his own party.

In this Big Picture, Laura Tyson, a former chair of President Bill Clinton’s Council of Economic Advisers, and McKinsey & Company’s Lenny Mendonca call on Congress urgently to pass a new fiscal stimulus package to shore up struggling households and businesses. Likewise, Nobel laureate economist Joseph E. Stiglitz says the US desperately needs large rescue programs targeted specifically at the most vulnerable households and sectors. And Harvard University’s Dani Rodrik urges policymakers to create good jobs by investing in scaling up proven worker- and firm-centered programs, rather than relying on tax incentives.

But Todd G. Buchholz, a former White House director of economic policy under President George H.W. Bush, warns that the Biden administration will eventually need to rein in the federal budget deficit in order to contain the increase in the US public debt. Michael J. Boskin, a former chairman of Bush’s Council of Economic Advisers, therefore argues that, if Republicans hold on to the Senate, Biden should consider emulating Clinton by working with the congressional GOP to hold down spending and taxes.

Similarly, Stanford University’s John B. Taylor, a US Treasury under secretary from 2001 to 2005, hopes that Yellen’s appointment augurs the embrace of clear and predictable rules-based policymaking that limits the discretion of vote-seeking politicians. 

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