June 11, 2010

Op-Ed Columnist - Prune and Grow - NYTimes.com

Op-Ed Columnist - Prune and Grow - NYTimes.com:
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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