An economics problem or a political problem?
I quite liked Robert Samuelson's column today outlining the various positions in today's economic debate. As he says, the logic of Keynesian stimulus spending is tight, and the danger posed by debt crises is real, but there's some contradiction between the two as more stimulus spending might hasten a debt crisis. Normally, we'd turn to economists to work this one out, but for all the certainty evinced by individual economists, the profession doesn't speak with one voice on what to do next. "We may be reaching the limits of economics," Samuelson frets.
But are we facing a problem of economic theory or political institutions? Short-term stimulus spending need not conflict with deficit reduction. A fairly serious injection of funds -- say, $300 billion over the next two years -- could be paired with twice as much deficit reduction in the three years following the spending. Few economists, I think, would argue against the combination of short-term spending and longer-term deficit reduction if they believed the deficit reduction was certain. But the American political system has a lot of trouble making unpopular choices and some trouble sticking to those choices once they're made.
This is where you might expect a bloc of deficit hawks to step into the middle of the legislative debate with a proposal pairing spending in 2011 with savings beginning in 2014, but we've seen no such thing: Instead, we've heard the sort of vague concerns about deficits and stimulus that suggest we'll see inaction on both counts. And that's almost certainly the wrong course. But our inability to make the obvious compromises because they are politically difficult isn't the fault of economists. It's the fault of politicians, and maybe of voters.
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