The U.S. economy needs a big one-two punch, with job-creating stimulus followed by a deficit-reduction package, former Treasury Secretary Robert Rubin said Wednesday at the Washington Ideas Forum.

The ultimate question for our economy, however, is the political will to do the right thing, he said. Preventing a double dip recession and returning to normal growth requires Congress to adopt a willingness to base decisions on fact and analysis, a willingness to give and take with the other party, and a willingness to make very difficult political decisions.

Rubin said most economists didn't expect the economy to double dip, but he warned that the outlook appeared mired in slow growth until the next presidential election. "It's very easy to be deeply concerned," he said, highlighting the importance of end of this year, when the Bush-Obama tax cuts expire and the deficit committee faces a deadline to make a decision on future spending and taxing. On the issue of revenue, Rubin said we should increase taxes on the rich by returning the top rate to the Clinton days (when the top marginal rate was 39.6 percent) and reduce tax expenditures. Spending should continue to increase over the baseline, he said, adding that "robust demand would return the U.S. to 5 percent unemployment, which is considered "normal" by many economists.

Asked about the fate of the euro zone, Rubin said Europe's leaders have been behind the markets since day one. "I think there is a muddle-through scenario that is very complicated," he said. "The politics are enormous complicated with 17 countries. The probabilities favor the Europeans muddling through to something sustainable."

In the long term, the United States shows "tremendous comparative strengths," Rubin said, including rule of law, flexible labor capital, and favorable demographics with high immigration and a relatively young workforce. "I think we're well positioned to succeed," he said. "But it gets you back to political will. Will we have the effectiveness in our political system, or will we not?

View the full session at FORA.tv