The U.S. economy will probably fall into a recession in 2013 if lawmakers can’t break an impasse over the federal budget, Harvard University economics professor Martin Feldstein said.
“We have avoided recession until 2013,” Feldstein said in a Bloomberg Television interview from Jackson Hole, Wyoming. “If the fiscal cliff actually happens -- which I don’t think it will but if it happens -- then we get pushed into a recession. We are talking about knocking 4 or 5 percentage points off” gross domestic product.
The nonpartisan Congressional Budget Office said Aug. 22 that scheduled tax increases and spending cuts in 2013 would lead to economic output shrinking, unemployment rising, and conditions that would “probably be considered a recession.”
“We are starting with a very weak economy,” Feldstein said. “The economy is certainly very weak now and is expected to stay weak for the rest of the year. We are crawling along in the bottom of an economic hole and we could easily see a further decline if there is a negative shock.”
There is no sign of an agreement to avoid a so-called fiscal cliff. Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or the automatic spending cuts that would begin taking effect in January.
Feldstein also said he didn’t think the Federal Reserve should take additional action to stimulate the economy, which has been held back by uncertainty over fiscal policy rather than monetary policy.
Feldstein, 72, is a former president of the National Bureau of Economic Research and a member of the NBER committee that declared the recession ended in June 2009. He formerly served as chief economic adviser to President Ronald Reagan.