Will It Take a Crisis to Fix Fiscal Policy?

Unless current policies are reformed, the national debt will continue to grow relative to GDP until a sovereign debt crisis, like those in Ireland and Greece, is inevitable. Although the nation is becoming more concerned about spiraling debt and a presidential fiscal commission and other groups have suggested reforms, the president and congressional leaders have been unwilling to recommend specific policy reforms. Consequently, it is becoming more and more likely that policymakers will not undertake necessary reforms until a financial crisis forces their hand. (This paper will appear in the April 2011 issue of Business Economics.)