Oldie Goldie From March 16, 2010 "More About Working Together"

This week I am republishing a post from 10 years ago. I think I was much too optimistic but I was younger then. :-)

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.