With the $85 billion from the sequester’s sweeping budget cuts taking effect and public concern mounting about how austerity measures will impact daily life, some in Washington see the right conditions for Republicans and Democrats putting down their gloves in order to tackle, together, the U.S. debt.

“I actually think the situation right now is as favorable as it’s been in the last couple of years … for a grand bargain” to stabilize the debt, said economist Alice Rivlin Wednesday at The Atlantic’s Economy Summit in Washington.

Dr. Rivlin, a former Office of Management and Budget director and Vice Chairman of the Federal Reserve who is currently a senior fellow at the Brookings Institution’s Economic Studies Program, has been on the frontlines of the recent debt fight. She was on the National Commission on Fiscal Responsibility and Reform (known as the Simpson-Bowles Commission) and co-chaired the Bipartisan Policy Center’s Task Force on Debt Reduction.

In her view, a fundamental problem is that U.S. debt is rising faster than the economy is growing. “That’s a really bad situation to be in,” she said. Her comments were Webcast live.

To get out of that bind, what is necessary, she said, is a bipartisan deal that must do two politically thorny things: slow the growth of major entitlement programs like  Medicare, Medicaid and Social Security while raising more revenue for the government through tax code reform.

Getting a handle on the debt through a reasoned and measured political process is an essential step toward improving American competitiveness at a time when it is slipping. The political toll of debt politics are almost as damaging to the country’s fiscal future as the rising payments in the coming years to America’s lenders around the world. A “grand bargain” would go a long way toward shoring up confidence in the larger American political and economic system because it would show a willingness to think, and act, with a long-term mindset.

Austerity, which is taking a toll on Europe’s economies and creating some of the Continent’s nastiest political fights seen in decades, is not the answer in America. Growth is what is needed, she said.

“We don’t need austerity now … I would get rid of the sequester if we could. It’s bad policy,” she said.

The United Kingdom stands at the doorstep of a third recession in five years, according to the latest data, underscoring the rising stakes of the political debate over budget cutting measures at a time when sectors of the economy such as manufacturing are struggling. Read more in the Daily Telegraph.

A “grand bargain” type compromise in Washington could help avert implementing incautious austerity measures, which threaten American competitiveness and undermine already diminished confidence in the political leadership in Congress.

To that end, Dr. Rivlin said President Barack Obama is taking some important steps. “I’m very heartened he is reaching out to Republicans … getting off the campaign trail and getting back to the business of ‘lets solve some problems’,” she said.

Check out ASP’s White Paper on American Competitiveness that discusses these issues further:

Read our Blogs and Listen to our other podcasts in the series:

Podcasts:

American Competitiveness – Interview with former Gov. Christine Todd Whitman

Adm. William Fallon (Ret.) on sequestration and American Competitiveness

Sequestration – what’s happening in the States

American Competitiveness and National Security – Podcast

Blog Posts:

Veteran Unemployment and American Competitiveness

Living with uncertainty in the defense industry

Harvard Business School survey finds more pessimism about U.S. competitiveness

Competitiveness – Education: What most schools don’t teach

Sequestration – damage to American competitiveness

Energy R&D Critical to American Competitiveness

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