David Brooks take on the increasing deficits and crushing debt that have followed government stimulus spending is a sanity check on what most politicians would have us believe...that the stimulus spending was a success for job creation/saving.
It's clear to most rational people that the U.S. (and most other Western countries) have created unsustainable deficits and debt thereby creating/preserving public sector jobs but comparatively fewer in the private sector. It's also true that these debts have not all been created during the present long-lived recession.
Public sector spending has outstripped the capacity of the economy to support it while the promised 2-3 million jobs "created or saved" failed to materialize. This spending splurge gratifies many liberals who favor the welfare state while irking conservatives thereby stirring the political pot.
That pot is likely to boil over in November as voters continue to display their distrust of incumbents, particularly those who have been in Washington long enough to be responsible for the out-of-control spending. Incumbents who have supported high spending should be very concerned about voter backlash.
Hopefully, TeamObama will not push another round of stimulus spending that we cannot afford. It's time to reduce spending and deficits as some research shows it to aid economic recovery.
Alberto Alesina of Harvard has surveyed the history of debt reduction. He’s found that, in many cases, large and decisive deficit reduction policies were followed by increases in growth, not recessions. Countries that reduced debt viewed the future with more confidence. The political leaders who ordered the painful cuts were often returned to office. As Alesina put it in a recent paper, “in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”
This was true in Europe and the U.S. in the 1990s, and in many other cases before. In a separate study, Italian economists Francesco Giavazzi and Marco Pagano looked at the way Ireland and Denmark sharply cut debt in the 1980s. Once again, lower deficits led to higher growth.
Brooks notes that to assist tax-paying middle class jobs:
"During the period of consolidation, in other words, the government will have to spend less, but target better. That will require enormous dexterity and intelligence from a political system that has recently shown neither."
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Brooks says in his intro "Economists were divided then about whether this spending was worth it , and they are just as divided now." Adding that "Over all, most economists seem to think the stimulus was a good idea..." So lets see - economists (smart people who analyze complex economic systems are "divided but most think the stimulus was a good idea". In contrast, he goes on to say, "Voters (sheep), business leaders (assholes) and politicians (assholes on steroids) do not seem to think the stimulus was such a smashing success." Hmmm, whose judgement to think is better on this topic? Moreover, Alesina's study surveyed debt reduction at all times without regard to the phase of the business cycle. I believe that deficit reduction during the up phase of the business cycle tends to moderate "bubbles" and inflationary pressures and do result in higher growth. During recessions however deficit reduction the anti growth impact is very real. As Alesina concludes, "spending cuts are are amore effective way to stabilize debt than tax increases, though we'll need both". Obama first enacted a stimulus plan Brooks writes "most economists thought was a good idea" and now Obama is proposing spending cuts (see recent proposal for across the board cuts in all federal departments and some tax increases (less spelled out but in the works. In other words exactly the Brooks/Alesnia perscription. Do these policies need to be well thought out and targeted - of course. That is a tall order for government but government is not going away - Obama has shown himself to be smart, thoughtfull, analytic. Not qualities that come to mind in thinking about John McCain or Sarah Palin - let's see what happens. My prediction - a slowly improving economy. A few years form now we may be very impressed with the balanced way the obama administration navigated through the banking and fiscal crisis we found ourselves saddled with after a decade of Greenspan's benign neglect.
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