fiscal policy
Should the government budget the way families do? Here's an excerpt from Paul Krugman's latest column:
One striking example of this rightward shift came in last weekend’s presidential address, in which Mr. Obama had this to say about the economics of the budget: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”
Earlier this week, reacting to the weak GDP growth rate of 1.8% in the first quarter, David Leonhardt wrote:
But our working assumption should be that this recovery will remain at risk for a long time. If it stalls out for a second year in a row, the consequences could be particularly bad. The specter of a “lost decade,” like Japan’s, would become commonplace. Pessimism would feed yet more hesitation from businesses and households.
So far, so good. He then goes on to make the case for short-term stimulus of a particular form, as it is "the only way in which I can imagine Congress taking action to help the economy:"
What I had on my mind heading into the election was this column by Paul Krugman from Sunday, "Mugged by the Debt Moralizers." Consider this passage, in particular:
So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.
I am in firm agreement on the first point. In fact, it would be hard to find someone who called for more spending than I did any sooner than I did. (Nice summary here.)
Over at Economist's View, Mark Thoma comments on a piece by Joseph Stiglitz from Monday's Financial Times that questions the value of using monetary rather than fiscal policy to deal with the economy. Stiglitz makes a number of very good points (you can almost hear the frustration in his writing), but he quickly goes past what I see as the money quote:
The Fed has bought more than a trillion dollars of mortgages and long-term bonds, the value of which will fall when the economy recovers – precisely the reason why no one in the private sector is interested. The government may pretend that it has not experienced a capital loss because, unlike banks, it does not have to use mark-to-market accounting.
My column from this morning's Roll Call asks two very troubling questions:
1. Why are some people refusing to hear what the bond market is saying?
2. How is it possible that so many of those who insist the bond market should be ignored now were saying just the opposite before?
Having It Both Ways on the Bond Market’s Message
Sept. 7, 2010
My Aug. 3 column about the former “bond market vigilantes” now being obvious federal budget deficit cheerleaders generated a great deal of attention and lots of pro and con comments.
