Grow Now, Cut Deficits Later

[Direckshun]

The Wall Street Journal talking some sense.

http://online.wsj.com/article/SB1000...googlenews_wsj

The Long and Short of Fiscal Policy
The economy is too shaky to go cold turkey. We need more stimulus now and deficit reduction later..

by Alan Binder
May 21, 2012, 7:03 p.m. ET

Can we talk about the federal budget deficit? Better yet, can we think about it? For there has been a lot more talking than thinking. One persistent point of confusion arises from the radically different macroeconomic effects of larger budget deficits in the short and long runs.

In the short run—let's say within a year or so—a larger deficit, whether achieved by spending more or taxing less, boosts economic growth by increasing aggregate demand. It's pretty simple. If the government spends more money without raising anyone's taxes to pay the bills, that adds to total demand directly.

But don’t we need to reduce the deficit—and by large amounts? Yes, we do, but that’s in the long run, where the effects of larger deficits are mostly harmful to economic growth. In the jargon, more government borrowing tends to ‘crowd out’ private borrowers by pushing interest rates up… There is an important exception, however, which is highly germane to today’s situation… Right now, the U.S. government can borrow for 10 years at under 2% per annum. At these super-low interest rates, you don’t have to be a genius to find many public infrastructure projects with strongly positive net present values. Borrowing to make such investments will enhance long-run growth, not retard it.

Looking ahead, the lion’s share of projected future deficits comes from rising health-care expenditures. Some of this cost escalation stems from heavier usage—consuming more health services per capita. But most of it comes from ever-rising relative prices; health care just keeps getting more expensive relative to almost everything else… So here, in brief, is my three-step rehab program for our nation’s fiscal policy. First, enact a modest stimulus, sharply targeted on job creation—and avoid falling off the fiscal cliff. Second, once the economy is ready, start on something that resembles the 10-year Simpson-Bowles deficit-reduction plan—which would pay for the stimulus 15-20 times over. Third, figure out how to bend the health-care cost curve downward.

[Amnorix]

This is always my preference. My worry is that it seems (to our idiot legislators) to NEVER be time to cut the deficit. It seems to always be either "economic growth is [negative/anemic], we can't cut the deficit now" versus (unstated) "I'm not going to kill the golden goose that will keep me in office"

[Calcountry]

Originally Posted by Amnorix

This is always my preference. My worry is that it seems (to our idiot legislators) to NEVER be time to cut the deficit. It seems to always be either "economic growth is [negative/anemic], we can't cut the deficit now" versus (unstated) "I'm not going to kill the golden goose that will keep me in office"

Democrats("Cutting deficits = tax increases) Republicans(Cutting deficits = cutting spending).

There is your problem.

[FD]

I think this is absolutely right. Ideally, we would pass a large infrastructure investment bill that also contains structural reforms to entitlement programs (like changing Medicare eligibility) so that its long-run deficit reducing. It makes too much sense to ever pass though.

[patteeu]

I agree with this prescription. It's a shame that Obama squandered the opportunity he had to pursue a plan like this. Maybe the next guy will do better.

[Direckshun]

Originally Posted by patteeu

I agree with this prescription. It's a shame that Obama squandered the opportunity he had to pursue a plan like this. Maybe the next guy will do better.

A second stimulus package is heresy to the Republican Party. Not the Democratic Party.

[headsnap]

Originally Posted by Direckshun

A second stimulus package is heresy to the Republican Party. Not the Democratic Party.

fool me once, shame on you... fool me twice, shame on me!!

[patteeu]

Originally Posted by Direckshun

A second stimulus package is heresy to the Republican Party. Not the Democratic Party.

Obama's fake shovel ready jobs stimulus and his immediate disregard for the conclusions of his own Bowles-Simpson commission destroyed his credibility. Time for new management. We need a guy with turnaround experience. Know anyone?

[FD]

Originally Posted by patteeu

I agree with this prescription. It's a shame that Obama squandered the opportunity he had to pursue a plan like this. Maybe the next guy will do better.

I wish I could be as optimistic as you. Do you really think theres a chance the current House will pass a deficit increasing package of new spending, no matter what president is sponsoring it?

[patteeu]

Originally Posted by FD

I wish I could be as optimistic as you. Do you really think theres a chance the current House will pass a deficit increasing package of new spending, no matter what president is sponsoring it?

The current house will be gone at the end of this year. The next house will either be a lot like the current house, if Obama finds a way to get re-elected, or it will be heavily influenced by the WH, if Mitt Romney wins. I think the chance of putting together some sort of short term stimulus packaged with longer term deficit reduction goes up under the latter scenario, but I don't know if I'd call myself overly optimistic.

[donkhater]

Hmmm....

Sounds suspiciously like the "If you give us the tax increases we'll cut spending" crap that was pulled for the last quarter century.

Does ANYONE seriously think deficit reduction will occur with a power hungry Congress making the decisions? They are addicted to taxpayer money or, at least, taxpayer credit. They ain't cuttin' sh!t.

It's mathmatically impossible to bridge the deficit gap with new revenue, so deficit reduction HAS to be through cuts. What makes you think Washington has the political backbone for that.

WAKE UP PEOPLE!!!

[patteeu]

Originally Posted by donkhater

Hmmm....

Sounds suspiciously like the "If you give us the tax increases we'll cut spending" crap that was pulled for the last quarter century.

Does ANYONE seriously think deficit reduction will occur with a power hungry Congress making the decisions? They are addicted to taxpayer money or, at least, taxpayer credit. They ain't cuttin' sh!t.

The deficit reduction that needs to occur is a structural change to the entitlements programs. Any attempt to get up-front stimulus (whether spending or tax cuts) in return for back end cuts from normal spending (whether discretionary or defense) is a non-starter, because as far as I'm concerned it would just be another con job.

[chiefzilla1501]

Stimulus? So we can create artificial jobs to fund public sector projects that probably provide minimal value?

The engine of the economy is small business.. When they innovate, and we build products foreign companies want. We need more Google and Apples. Instead, we waste small business time and money forcing them to comply with ridiculous regulations. They have to hire lawyers. Compliance managers. Waste time on ridiculous paperwork. Listening to regulators bitching that a flower on their restaurant patio is the wrong color.

Clueless obama thinks a tax cut to small businesses is Goin to erase the cost of government poking into every business. That's what happens when a politician who's never worked a private sector job tries to create private sector jobs.

[DementedLogic]

How many more times are we going to double down on Keynesian Economics, and lose, before we realize it doesn't work?

[Amnorix]

Originally Posted by DementedLogic

How many more times are we going to double down on Keynesian Economics, and lose, before we realize it doesn't work?

How are those austerity measures working out in Europe?