Two Treasury secretaries from two different parties who served under two different circumstances agree on one thing: The U.S. has to, and probably will, avoid the so-called fiscal cliff.
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Treasury Building
If it does not, agreed Henry Paulson and Robert Rubin, the consequences will be dire at a time when the country can ill afford another crisis.
Paulson, who served under President George W. Bush and had to help the country navigate through the worst financial crisis since the Great Depression, said Congress at some point will to address the deficit reduction necessary to avoid the worst-case scenario.
"The question is, do you do it before the crisis or after the crisis?" Paulson said at the "Delivering Alpha" conference presented by CNBC and Institutional Investor. "A crisis sure does focus minds. There's some evidence to indicate that it takes a crisis to get a difficult thing done. There's some reason for optimism right now."
Rubin, who served during the relatively prosperous tenure of President Bill Clinton that nonetheless is sometimes blamed for creating the easy-money atmosphere that caused the financial crisis, said policy solutions would be elusive for what essentially is a political crisis.
"In a financial crisis you could respond with stimulus and with monetary policy. Obviously with a fiscal crisis you can't respond with the same tools," he said. "I hope at some point our political system comes together to deal with this before it becomes a crisis."
If Congress and President Barack Obama cannot agree on proscribed deficit-reduction targets by the end of the year, a series of tax increases and cuts will kick in automatically.
Economists estimate that the damage to the U.S. economy would exceed more than half a trillion dollars and shave several points off gross domestic product.
Both Rubin and Paulson said that not only does the crisis need to be avoided, but the nation's leaders also need to start talking about the issues that will be pivotal to future growth.
Rubin said domestic policy needs to focus on three areas: a "sound fiscal regime" entailing responsible budgeting; more government spending on education and infrastructure; and reform in health care, immigration and other areas.
"In the longer term I think we could have a very successful economy in this country," he said. "If our government functions well enough to fit the challenges I described, I think we have tremendous advantages. There really has been a maldistribution of income of tremendous magnitude."
Paulson, though, said the presidential campaignbetween Obama and Republican Mitt Romney has come so far up short in addressing key issues.
"It's going to take bipartisan action to (accomplish) the things he talked about," Paulson said, referring to Rubin. "It's not rocket science. But these things aren't being debated in the campaign. They're just not being discussed."
