The fiscal policy that the U.S. is pursuing is “opposite of the optimal” for a weak economy, said Nouriel Roubini, known as Dr. Doom for predicting hard times before the global financial crisis began in 2008.
Ideally, in a weak economy, “you would like to have short-term stimulus, and for that short-term stimulus to continue for as long as necessary, while you have a credible medium-term plan for the fiscal discipline,” Roubini said today during a macroeconomic policy debate in Washington.
“The U.S. right now is doing the opposite of the optimal, because we have no medium-term plan for fiscal consolidation” due to political gridlock, “and we don’t have actual short-term stimulus,” Roubini said.
Congress and the Obama administration are at loggerheads over how to replace the across-the-board federal spending cuts, called sequestration, that kicked in earlier this year and aimed at lower deficits.
President Barack Obama sent a $3.8 trillion budget to Congress on April 10, calling for more tax revenue and slower growth in entitlement spending while Congressional Republicans oppose higher taxes and seek to eliminate the deficit within a decade by cutting $4.6 trillion out of federal expenditures.
The U.S.’s fiscal gap will narrow to 6.5 percent of gross domestic product in 2013 from 8.5 percent in 2012, while the country lacks a clear plan to reduce its debt, the International Monetary Fund said in its Fiscal Monitor report yesterday.
Roubini is a professor of economics and international business at Stern School of Business at New York University and the co-founder and chairman of Roubini Global Economics LLC, a macroeconomic and market strategy research company.