Tuesday, March 16, 2010

More about Working together

In the previous post I forecast that extremist policy views would soon be seen as selfish, inappropriate, and counter-productive -- and will be edged out by saner ideas based on cause and effect logic. I know that sounds crazy but the evidence is piling up. I know -- it doesn't seem to be apparent in the health care reform debate but it is showing up in other places. I quote from yesterday's article in the Financial Times (page 11, March 15) "A frugal budgetary policy is the better solution" by George Osborne and Jeffrey Sachs...
"Our macroeconomic view, in short, can be stated as follows. We must escape from economic management by quarterly indicators and the demands of the political business cycle....Our priority should be a medium-term fiscal framework, with the first steps starting this year. That must be matched by improvements in the delivery of health, education, skills, and technology; social protection for those in need; and a decent regard for the long-term investments needed to rebuild an economy crushed by the bubbles of wishful thinking."

Sachs and Osborne point out what most of us know -- we will never return to good economic growth with unsustainably high government budget deficits -- so they advocate real policies to quickly address and reduce the size of government deficits. Well intended short-term stimulus at this point, according to these authors, would be counter-productive. But they do not discount a role for government since they forcefully advocate a public role in "... regulation, high quality education, pre-commercial innovation, and a world-class science and technology base.

Sachs is director of the Earth Institute at Columbia University . More information about him and a link to the FT article can be found at:http://www.earth.columbia.edu/articles/view/1804

It is a question of priorities. It doesn't matter if it was Bush or Obama who caused a larger national debt. It doesn't even matter the goodness or the motivations of the government spending. What matters most today is that most people -- at home and abroad -- wonder and worry if the US will find a way to reverse the very large deficits of the last couple of years. We see what those kinds of worries did to Greece and the Euro. Greece now must experience a macro shock treatment if it is to convince the world that it is credit-worthy. The US situation is not as dire now -- but the lesson is instructive.

First things first. If we remove the shackles of debt incredibility then we set the stage for a return to economic growth. It is this economic growth that will restore the job engine and the income growth that will allow some wiggle room to work on social inequity. Reversing the order of things right now makes no sense and helps no one.

1 comment:

  1. I can recall back when Bush was prez (no the other one who only had one term). A bud of my Dad who was a sub mariner and rose to the rank of Capt. in the Navy sold his house he bought after he finished his tour in occupied Japan and was stationed in Hawaii. The house was located just off Sunset Beach. He bought a new house near my Dad's house on Key Vaca. As I listened to the Capt. and my Dad talking the guy said he did not want to sell the rather modest by current standards house but some one from Japan offered him $US17,000,000 (as in seventeen million) for it; an offer he could not refuse. This was part of the same group that bought Rockefeller Center in New York at an inflated price and later sold it back to the US at a loss.

    What does this have to do with your post. Well there was massive griping about the US business taking a short term view while Japan was taking a longer term view in the economic sense.

    Where did this long term view get Japan; well if we ignore the "lost decade" (google it) and even if we don't it is worth noting that Japan has out spent the US in stimulus (I use that term loosely) and has a much worse deficit proportion wise than the US does. Not to mention the demographics in Japan are a nightmare. China has bad demographics as well, but in a different way.

    Not to put too fine a point on the working together concept; but I have mentioned the Prisoner's Dilemma before. As usual Wiki is your friend