Government policies matter when it comes to public health. And when a country’s economy is suffering a severe economic crisis, the decisions become even more critical. Over the past few decades, protecting social programs and spending on health has been a cornerstone of the IMF’s support for countries.
Guest post by George A. Akerlof
University of California, Berkeley
Senior Resident Scholar at the IMF, and co-host of the Conference on Rethinking Macro Policy II: First Steps and Early Lessons
I learned a lot from the conference , and I'm very thankful to all the speakers. Do I have an image of the whole thing? I don't know whether my image is going to help anybody at all, but my view is that it's as if a cat has climbed a huge tree. It's up there, and oh my God, we have this cat up there. The cat, of course, is this huge crisis.
And everybody at the conference has been commenting about what we should do about this stupid cat and how do we get it down and what do we do. What I find so wonderful about this conference is all the speakers have their own respective image of the cat, and nobody has the same opinion. But then, occasionally, those opinions mesh. That’s my image of what we have been accomplishing.
Without good fiscal information, governments can’t understand the fiscal risks they face or make good budget decisions. Fiscal transparency—the public availability of timely, reliable, and relevant data on the past, present, and future state of the public finances—is thus to the foundation of effective fiscal management.
Everyone wants at some point to stop working and enjoy retirement. In these uncertain economic times, most people worry about their pension. Now take your worries and multiply those several billion times. And the problem is likely bigger still: although living longer, healthier lives is a good thing, how do you afford retirement if you will live even longer than previously thought?
Many of the root causes of the euro area crisis still need to be addressed before the system is stabilized and returns to health. Until this is done, global financial stability is likely to remain well within the “danger zone,” where a misstep or failure to address underlying tensions could precipitate a global crisis with grave economic and financial consequences.
When I traveled to Reykjavik in October 2008 to offer the IMF’s assistance, the situation there was critical. The country’s three main banks—which made up almost the entire financial system—had just collapsed within a week of each other. The sense of fear and shock were palpable—few, if any, countries had ever experienced such a catastrophic economic crash. Today, three years later, it is worth reflecting on how far Iceland―a country of just 320,000 people―has come since those dark days back in 2008.
The United States faces two pressing challenges to fiscal policy: raise the debt ceiling, and begin the arduous process of reducing deficits and debt. And, right now, this leaves U.S. fiscal policy between a rock and a hard place. How much savings should be found and in what form are crucial questions. So is when to put those savings in effect.