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Meltzer Encourages Senate Budget Committee to Focus on Long Term Policies and Reducing Uncertainty

The Federal Reserve is relying too heavily on short-term palliatives that have little long-term benefit for the U.S. economy, according to Allan Meltzer, The Allan H. Meltzer University Professor of Political Economy at Carnegie Mellon University’s Tepper school of Business. His remarks, titled “Why the Recovery is Slow: What Should Be Done?”, were presented at a hearing of the U.S. Senate Budget Committee examining the impact of political uncertainty on jobs and the economy.

“The United States has long-standing real problems that require policy procedures very different from the policies we have,” Meltzer told the Committee. “Current policies aim at near-term change.  Little if any thought is given to the longer-term consequences.  The accumulation of neglect of those consequences and uncertainty about current and future policies is the main reason the recovery is slow.

Almost every current CEO, CFO, or business manager learned as part of his or her MBA to base investment decisions on discounted future cash flows. Current uncertainty about tax rates, healthcare costs, labor regulations, energy costs and finance preclude correct calculation of future costs and cash flows. Most firms hold extraordinary amounts of cash waiting for reduced uncertainty. We cannot eliminate all uncertainty about the future, but we can and should reduce the additional uncertainty created by tax and regulatory policies.”

Additional witnesses providing testimony for the hearing were Mark Zandi, chief economist at Moody’s Analytics, and chad Stone, chief economist at the Center on Budget and Policy Priorities.

Meltzer’s testimony can be viewed online at the U.S. Senate Committee on the Budget Website at His initial remarks begin at 1:02 in the archived webcast.