After the Great Recession: Now what should we do?

P­rominent economists and politicians examined the tough choices facing ­policymakers in the wake of the Great Recession during a daylong Woodrow Wilson School colloquium April 17.

Speakers included alumni who are current or former public officials, and they offered differing views on how the Obama administration’s policy will be shaped by the recession, how a divided Congress can work more productively, and the best strategies for dealing with the economic fallout and financial-market ­regulation.

“When it comes to the economy, we are very far from ‘normal,’” Christina Romer, chairwoman of the Council of Economic Advisers, said during an opening address to a crowd that filled Dodds Auditorium. The high unemployment rate is not a result of structural factors in the economy, she said, adding that “there is every reason to expect that long-term unemployment will come back down when aggregate demand recovers.”

Romer said the budget deficit must be addressed with a long-term plan, emphasizing that a stable economy would hinge on high savings and ­investment, not “borrowing, consumption spending, and unsustainable ­construction.”  

Romer’s emphasis on crafting a stable economy by promoting investment, cutting the deficit, and reducing systemic risk set the tone for the rest of the day.

In a panel titled “Our Budgetary Legacy to Our Children: Prosperity or Debt?” Joshua Bolten ’76, former chief of staff to President George W. Bush, said the “new normal” has gotten uglier in recent years because of increasing federal budget deficits. Bolten said the deficits are a result of overspending and critiqued the notion that the deficit could be solved were it not for under-taxing.  

Uwe Reinhardt, professor of economics and public affairs, and Alice Rivlin, director of the Economic Studies Program at the Brookings Institution, focused on how to increase government revenues through tax increases and budget cuts. Reinhardt suggested reductions in Medicare spending, criticizing the expansion of benefits provided by the Medicare Modernization Act of 2003.

Rivlin challenged the view that deficit reduction and sustaining the stimulus are mutually exclusive. “That assumes that we would cut spending tomorrow and raise taxes right away. What we have to do is enact long-term [deficit] solutions right away,” she said, while reforming Medicare, Social Security, and tax policy over the next several years.  

A panel on the regulation of U.S. financial markets explored the need to decrease systemic risk. “We want to end up in a world where, in fact, we can afford to let financial entities fail if they make bad decisions,” said Sherman Boone *79, assistant director of the SEC’s Office of International Affairs.