The Legacy of U.S. Fiscal Policy

I am honored to be giving this year’s Ibrahim M. Oweiss address, and am
extremely impressed by the energy and dedication that the organizers of the Carroll
Round have demonstrated in making this outstanding program a reality. The presence of
John Nash at this year’s conference only underscores the quality of the programs that you
have been able to put together. And I commend all of the student participants here
tonight, for your admirable interest in economics and economic policy.

The main point of my talk tonight is that we are at a critical moment in defining
the nation’s fiscal legacy. Regardless of who wins the November election, debates about
making the tax cuts permanent and about entitlement reform will likely be a prominent
component of the 2005 agenda in Washington. The outcome of these debates will matter
a lot for the world economy and they will matter a lot for you, because you will inherit
the consequences. We have become used to thinking about how environmental policy
leaves a legacy for future generations. But fiscal policy also leaves a legacy for future
generations—in other words, you and your children—and that is what I want to focus on
tonight.

I’ll begin by examining the recent history of the macroeconomic savinginvestment
balance, then turn to a discussion of projected fiscal deficits over the coming
decade, and conclude with some thoughts on longer-term entitlement reform.